Facebook business unscathed after record $5 billion FTC fine
Hours after Facebook agreed to pay a record $5 billion fine as part of a settlement with the Federal Trade Commission, the company once again showed that its business model of collecting data and targeting ads to users is working as well as ever.
Facebook on Wednesday reported $16.89 billion in revenue for the three months ending in June, a 28% increase from the same period a year ago, thanks to its dominant position as one of the few platforms in the world where advertisers can reach more than a billion users.
The social network’s audience continues to grow too. It hit 2.41 billion monthly active users in the quarter, up from 2.38 billion in the quarter prior.
“This company has repeatedly shown that it can grow both its ad revenue and its user base, even in the face of enormous challenges,” Debra Aho Williamson, principal analyst at eMarketer, said in a statement after the report. “Today’s earnings release demonstrates that it still has that power.
After more than a year of damning headlines and federal scrutiny, Facebook settled with the FTC for massive sum and agreed to a number of additional oversights to its privacy policies. And yet, even some of the agency’s commissioners admit the agreement “does little” to change Facebook’s business model.
But there are still some challenges ahead. Facebook confirmed in its earnings release that the FTC opened an antitrust investigation into the company in June. The Justice Department this week announced a broad antitrust review of the nation’s biggest tech companies, which Facebook also noted in its release.
On a conference call with analysts Wednesday, Facebook CFO David Wehner said the company expects its revenue growth rate to slow later in the year and into 2020 as it deals with “headwinds” with ad targeting. In particular, he pointed to a combination of regulation and product changes to “put privacy front and center.”
In a post on his personal Facebook page after the fine was announced, CEO Mark Zuckerberg stressed that the FTC settlement would impact the business. Facebook, he wrote, will hire “more than a thousand people” to assess and document the privacy risks of new features, and steps being taken to address those risks. Zuckerberg also said it would “take longer to build new products” as a result.
“We’re going to change the way that we operate across the whole company, from the leadership down and the ground up,” Zuckerberg said in remarks delivered at a company-wide meeting addressing the settlement on Wednesday morning. “We’re going to change how we build products and if we don’t, then we are going to be held accountable.”
Some FTC insiders were less convinced.
“The settlement imposes no meaningful changes to the company’s structure or financial incentives, which led to these violations. Nor does it include any restrictions on the company’s mass surveillance or advertising tactics,” Rohit Chopra, a Democratic commissioner at the FTC, wrote in a dissent to the 3-2 vote that went along party lines.
“Instead,” he continued, “the order allows Facebook to decide for itself how much information it can harvest from users and what it can do with that information, as long as it creates a paper trail.”
Ashkan Soltani, a former chief technologist at the FTC, echoed the sentiment. “This was a terrible outcome for our leading privacy regulator and a very sweet deal for Facebook,” he wrote on Twitter.
Investors also appeared unconcerned by the settlement. Shares of Facebook rose 1% in trading Wednesday after the FTC fine was announced. The stock previously jumped when Facebook said in its last earnings report in April that it was setting aside $3 billion to go toward a settlement.