Facebook Posts Strong Earnings, Revenue Growth -- 2nd Update
July 24 2019 - 9:54PM
Dow Jones News
By Jeff Horwitz and Deepa Seetharaman
Facebook Inc. pushed past a record-setting privacy fine, posting
strong second-quarter earnings that show the resilience of its
social-media empire despite persistent negative headlines and
intensifying Washington scrutiny.
The tech giant earned $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 announced
earlier on Wednesday, 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.
Yet even as Facebook resolved one major federal probe, it
disclosed the existence of another: an FTC antitrust review that
the company said began in June.
Facebook's results show the duality that currently defines the
company: It is a punching bag for critics, who pummel it for
repeated privacy missteps and misinformation on its platforms, but
a darling of investors, who prize the earning power of its targeted
advertising.
The company's top executives said they believe they can continue
to grow the business even while investing further in security and
privacy. "This quarter shows once again we can do both," Chief
Operating Officer Sheryl Sandberg said on an earnings call.
Facebook's earnings landed hours after a press conference in
which FTC officials announced a historic penalty against the
social-media giant that they hoped would prompt other companies to
take privacy concerns more seriously. Some lawmakers and two of the
FTC's five commissioners, however, have said the fine won't be
enough to prevent future violations.
The results also come as Facebook and other tech giants brace
for a wave of heightening scrutiny -- from the U.S. and abroad --
as lawmakers, regulators and rivals push for checks on Silicon
Valley's dominance over key markets.
In addition to disclosing the FTC's antitrust probe, Facebook
referenced Attorney General William Barr's announcement this week
that the Justice Department plans to begin its own review of
leading internet companies.
Facebook co-founder and chief executive Mark Zuckerberg on the
call repeated his support for more regulation but was more explicit
about part of his motivation: self-preservation.
"My broader concern is that if that doesn't get put in place,
then frustration with the industry will continue to grow," he said,
referring to new industrywide rules. "We're trying to do our part
to advocate for a good regulatory framework in each area."
While Facebook's adjusted earnings surpassed most analyst
estimates, all had predicted steady growth, reflecting Wall
Street's confidence that the company's financial performance would
continue to diverge from its reputational issues.
The tech giant's stock has risen 56% since the beginning of the
year, despite a pile of regulatory and legal challenges and a
skeptical reception for its plans to develop a global
cryptocurrency called Libra. Facebook shares climbed more than 3%
in after-hours trading Wednesday before dropping slightly.
The FTC settlement puts new guardrails around the company's
management and how it approaches privacy but doesn't severely
curtail Facebook's data-collection or ability to sell ads based on
it. The pact keeps Mr. Zuckerberg's power over the company largely
intact, while requiring the board to keep closer watch on privacy
matters.
Facebook now has a clear path forward, Mr. Zuckerberg said. "Not
just in terms of product and business -- in terms of guidance from
regulators, which sets clear expectations and gives us a foundation
to build on."
Even with the negative publicity and restrictions related to
Europe's new privacy law, Facebook continues to grow at twice the
rate of global internet advertising, said analyst Mark Mahaney of
RBC Capital Markets. He said it is possible that continued
regulatory scrutiny will impact the business, but the risk seems
manageable. Google has annually paid $2 billion to $3 billion to
regulators, he noted. "For Facebook, I won't treat it as a
recurring expense until it becomes one."
The idea that paying billions in fines is merely the cost of
doing business for a tech giant is precisely what animated many
critics of the Facebook settlement, who said it didn't go far
enough to enact changes to the business.
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, up 8% over the 1.56 billion
reporter last quarter, with 2.41 billion accessing Facebook on a
monthly basis -- also up 8%.
Some of the risks around Facebook's rocky trajectory were
evident in its introduction of Libra, a 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 required.
Mr. Zuckerberg said the Libra project's rollout demonstrated
Facebook has learned some valuable lessons in previous years, with
many partners and ample time for regulators to weigh in.
"Facebook from a few years ago would probably have just shown up
and tried to release a product on our own," he said.
Write to Jeff Horwitz at jeff.horwitz@wsj.com and Deepa
Seetharaman at Deepa.Seetharaman@wsj.com
(END) Dow Jones Newswires
July 24, 2019 21:39 ET (01:39 GMT)
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