By Jeff Horwitz 

Facebook Inc. pushed past a record-setting privacy fine in the second quarter, posting strong earnings that show the resilience of its social-media empire despite persistent negative headlines.

The tech giant recorded $16.9 billion in revenue, up 28% from a year ago. The company posted $2.6 billion in profit, or $0.91 a share, reflecting a one-time $2 billion charge as part of its $5 billion settlement with the Federal Trade Commission and an accounting change regarding tax deductions for stock-based compensation. Without those two charges, the company would have earned $1.99 a share, beating analysts' expectations of $1.88.

Facebook's results show the duality defining the company at the moment: It is a punching bag for critics, who pummel it for repeated privacy missteps and misinformation on its platforms, yet it is a darling of investors, who prize the earning power of its targeted advertising.

The company's stock has risen more than 50% since the beginning of the year, despite a pile of regulatory and legal challenges and a skeptical reception for its plan to lead the creation of a global cryptocurrency known as Libra.

Facebook shares climbed more than 3% in after-hours trading.

The FTC settlement puts new guard rails around Facebook's management and how it approaches privacy, but it didn't severely curtail the company's data collection and its ability to sell ads based on it.

Facebook's earnings filings note that the FTC isn't done with it: Facebook warned investors that the FTC launched an antitrust investigation of the company in June. That probe will run along the Justice Department's investigation announced Tuesday, which Facebook said was an antitrust review of "market-leading online platforms."

The earnings report demonstrated continued growth in Facebook's "blue" app, its oldest and largest product. The company said 1.59 billion accounts used Facebook daily, with 2.41 billion accessing Facebook monthly.

Globally, more than 2.7 billion people use at least one Facebook product monthly.

"We had a strong quarter and our business and community continue to grow, " Mark Zuckerberg, Facebook co-founder and chief executive, said in a statement. "We are investing in building stronger privacy protections for everyone and on delivering new experiences for the people who use our services."

Facebook's operating margin fell to 27% as costs rose to $12.26 billion from $7.37 billion a year ago, primarily reflecting the one-time charges. The company has warned it expects costs to rise as a result of increased spending on content moderation and regulatory compliance, though the company has avoided the sort of spending that Chief Financial Officer David Wehner warned last year could consistently drag down its margins.

While the adjusted earnings surpassed most analyst estimates, all had predicted steady growth, reflecting Wall Street's confidence that Facebook's financial performance would continue to diverge from the company's reputational issues.

Evidence that Russian agents sought to influence the U.S. 2016 presidential election brought heavy scrutiny to Facebook in 2017, and a series of user data leaks and privacy gaffes have dogged the company since. Debates about whether to break up Facebook and other tech giants arose in the Democratic primary earlier this year and are likely to play out on cable news throughout much of the next 15 months, while the Justice Department's and the FTC's antitrust probes are now being considered.

None of these controversies have changed Facebook's dominance of social media, which is furthered by the popularity of its other platforms, Instagram and WhatsApp.

Some of the risks around Facebook's rocky trajectory were evident in its rollout of Libra, an ambitious new cryptocurrency aimed at average consumers. In congressional hearings earlier this month, lawmakers said they would insist on strict oversight of the new digital money and questioned whether the company had earned the trust such a project requires.


(END) Dow Jones Newswires

July 24, 2019 17:12 ET (21:12 GMT)

Copyright (c) 2019 Dow Jones & Company, Inc.
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