In its financial reports for the first quarter, Facebook revealed that it is anticipating to pay as much as $5 billion to the Federal Trade Commission (FTC) of the United States of America. The report otherwise revealed continued revenue growth to over $15bn for the first three months of the year.
The firm said that Facebook recorded a $3 billion legal expense “in connection with the inquiry of the FTC into our platform and user data practices.”. The expenses result in a 51 percent year-over-year drop in net income, to just $2.4 billion. The company noted that in the absence of this one-time expense, the earnings per share of Facebook would have surpassed the expectations of analysts, and its operating margin (22 percent) would have been 20 points higher.
The tech giant stated: “We estimate that the range of loss in this matter is $3.0bn to $5.0bn.”
It added: “The matter remains unresolved, and there can be no assurance as to the timing or the terms of any final outcome.”
The FTC launched a probe into the privacy practices of Facebook in March 2018 as a response to the revelations of Cambridge Analytica. The investigation has focused on whether the data practices that allowed Cambridge Analytica to obtain user data from Facebook violated the 2011 agreement of the company with the FTC. Reportedly, Facebook and the FTC have been negotiating over the settlement, which will dwarf the prior largest penalty for a privacy lapse, a $22.5 million fine that was imposed against Google in 2012.
The results of Facebook were otherwise strong, with total revenue and monthly active users surpassing analyst expectations. Shares rose by more than 4.5 percent in after-hours trading.
However, Debra Aho Williamson, an eMarketer analyst, warned that the expectation of an FTC fine may predict future trouble.
She stated: “This is a significant development, and any settlement with the FTC may impact the ways advertisers can use the platform in the future.”
In a statement, Mark Zuckerberg, the CEO and founder of Facebook, stated: “We had a good quarter and our business and community continue to grow,” adding: “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.”
The reference of Zuckerberg to “issues around the internet” echoes the messaging of the CEO from last quarter when he expressed confidence that the company had “started to turn a corner” on the laundry list of “social issues” that have severely damaged the reputation of the firm since 2016.