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Facebook expects multibillion-dollar FTC fine, but stock still gains after earnings

Facebook Inc. shares jumped in late trading Wednesday, even as the company said it expects to pay a multibillion-dollar fine to the Federal Trade Commission. Read More...

Facebook Inc. shares jumped in late trading Wednesday, even as the company said it expects to pay a multibillion-dollar fine to the Federal Trade Commission.

Facebook took a $3 billion charge in the first quarter, as it “reasonably estimated” that it will be required to pay that much as the FTC looks to punish the company for violating a consent decree on user privacy. Without that charge, Facebook would have easily topped earnings estimates, so after a brief decline in shares during after-hours trading, they jumped back up to a 4% gain.

“We estimate that the range of loss in this matter is $3 billion to $5 billion,” Facebook disclosed in its news release. “The matter remains unresolved, and there can be no assurance as to the timing or the terms of any final outcome.”

Amid a constant stream of negative headlines throughout 2018, Facebook FB, -0.65%  managed to not only stay afloat but also continue to thrive, with record profit, revenue and user numbers. In the first three months of 2019, amid talk of consequences for Chief Executive Mark Zuckerberg specifically and continuing foibles such as lax internal password storage, the social-media giant continued to defy expectations of a financial penalty for its misdeeds, according to Wednesday’s earnings report.

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The FTC fine could be an important turning point for its continued success, though, according to eMarketer principal analyst Debra Aho Williamson, who is concerned that any settlement may include more than money.

“Advertisers should take note of Facebook’s revelation that it set aside $3 billion in the quarter to deal with the FTC investigation of its platform,” Williamson wrote in an email. “This is a significant development, and any settlement with the FTC may impact the ways advertisers can use the platform in the future.”

Facebook reported first-quarter profit of $2.43 billion, or 85 cents a share, on sales of $15.08 billion, after posting earnings of $1.69 a share on sales of $11.97 billion in the same quarter a year ago. Net income would have been $5.43 billion, or $1.89 a share, without the charge for the expected FTC fine. Analysts on average expected earnings of $1.62 a share on revenue of $14.98 billion, according to FactSet.

User numbers also continued to grow, with Facebook reporting monthly active users of 2.38 billion, up 8% from last year, and daily active users of 1.56 billion, also up 8%. Analysts on average projected that Facebook’s monthly active users would rise by about 54 million sequentially and 178 million year-over-year, to 2.37 billion, with growth in all geographies, according to FactSet. Daily active users were projected to rise to 1.56 billion, from 1.45 billion a year ago and 1.52 billion at the end of 2018.

“We had a good quarter and our business and community continue to grow,” Zuckerberg said in a statement. “We are focused on building out our privacy-focused vision for the future of social networking, and working collaboratively to address important issues around the internet.”

Despite all of its problems, Facebook shares have gained more than 14% in the past year, topping the 11% growth of the S&P 500 index SPX, -0.22%  Shares ended Wednesday with a 0.7% decline at $182.58, then topped $190 a share in after-hours trading following the report. Facebook has not traded for more than $190 a share in a regular session since last July.

Facebook is scheduled to hold a conference call to discuss earnings at 5 p.m. Eastern time.

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