Facebook’s Q1 Profit Dips As It Braces For Potential $5 Billion Fine From US Regulator Federal Trade Commission

Facebook Co-founder and CEO Mark Zuckerberg. (Photo by David Ramos/Getty Images)

Facebook announced that it has provisioned $3 billion to cover a potential fine by the US regulator Federal Trade Commission (FTC) for a series of privacy violations, FT reported.

The tech behemoth on Wednesday (24 April) said that it expects an ongoing investigation from the FTC could result in fines ranging from $3 billion to $5 billion.

In a press release accompanying the release of its first quarter result, the company said that:

In the first quarter of 2019, we reasonably estimated a probable loss and recorded an accrual of $3.0 billion in connection with the inquiry of the FTC into our platform and user data practices, which accrual is included in accrued expenses and other current liabilities on our condensed consolidated balance sheet. We estimate that the range of loss in this matter is $3.0 billion to $5.0 billion. The matter remains unresolved, and there can be no assurance as to the timing or the terms of any final outcome.

Facebook’s revenue for the first quarter of 2019 stood at $15.1 billion, representing a 26 per cent rise compared to the same period last year. But since the company had to set aside $3 billion for the potential fine, Facebook's profit for the first quarter of 2019 was $2.4 billion, a decrease of 51 per cent from the same period a year ago.

Facebook's announcement that it is bracing up for a massive fine, however did not result in any investor panic. Shrugging off Facebook’s warning, the company’s share price rose as much as 10 per cent in after hours trading Wednesday (24 April) following the news.

The number of daily active users (DAUs) – DAUs of the company stood at 1.56 billion for March 2019, an annual increase of 8 per cent. Monthly active users (MAUs) on the platform were 2.38 billion as of 31 March 2019, an increase of 8 per cent year-on-year.

The company also claimed that more than 2.1 billion people now use Facebook, Instagram, WhatsApp, or Messenger every day on average, and around 2.7 billion people use at least one of its Family of services each month.

FTC has earlier fined the technology behemoth but those had minimal impact on its finances.

In 2012, the FTC fined Google $22.5 million for violating an earlier privacy agreement with the agency. Google’s annual revenue in 2012 was $50 billion.

Facebook has been facing increased scrutiny ever since the Cambridge Analytica scandal surfaced last March. Facebook also came under lot of criticism after it admitted that it was offering greater amount of user data to companies than it had previously admitted.

FTC launched its investigation in March 2018 after revelations during Cambridge Analytica scandal that the data of 87 million users was improperly accessed by a third party.

Cambridge Analytica was a British political consulting firm which combined data mining, data brokerage, and data analysis with strategic communication during the electoral processes. It shut down after the scandal broke out.

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