Facebook Estimates FTC Fine Between $3 Billion and $5 Billion
It looks likely that Facebook (FB) is getting a sizable fine from the FTC.
In Facebook’s otherwise well-received earnings report, it included a footnote related to its costs and expenses. The company said it set aside $3 billion as part of ongoing legal proceedings with the FTC. Facebook shares were up 7.6% in after-hours trading after it beat quarterly estimates on the top and bottom lines.
As part of a penalty related to its Cambridge Analytica scandal, however, Facebook has been negotiating a settlement with the FTC. Facebook wrote in the release that it estimates that penalty to fall into the range of $3 billion to $5 billion, but said the matter is still ongoing.
The Cambridge Analaytica case involved a political consulting firm funded by right-wing contributors, including Trump adviser Steve Bannon, and hired by the Trump presidential campaign. The company gained access to personal data of 50 million Facebook users as a way to gain information to be used to influence voting patterns.
Facebook set aside the low end of the range for accounting reasons, Facebook executives said, but it still impacted their margins for the quarter: “Excluding this expense, our operating margin would have been 20 percentage points higher, our effective tax rate would have been 14 percentage points lower and our diluted EPS would have been $1.04 higher,” Facebook said in its earnings release.
The expense is lumped in with general and administrative expenses, which jumped from about 6% in most quarters to 27% last quarter owing to the $3 billion set aside in the settlement discussions.
On a call with investors, Facebook CFO Dave Wehner declined to offer much more detail on the FTC proceedings, saying only that the size of the fine is uncertain. But he also reiterated that Facebook expects its revenue growth rates to decelerate sequentially throughout this year: “In addition, we anticipate ad targeting related headwinds will be more pronounced in the second half of 2019.”
In response to an analyst question about the deceleration trends, Wehner noted that: “One of the factors in the expected deceleration was due to the evolution of the regulatory landscape…that’s going to contribute.”
Aside from its FTC entanglement, Facebook is also working on a long-term pivot away from the public nature of its products, as first outlined in a missive from CEO Mark Zuckerberg at the beginning of March.
Facebook’s stock is up 35% year-to-date.