For Facebook and Alphabet, Big-Ticket Fines Cause Limited Pain
By Theo Francis
Facebook Inc. and Google parent Alphabet Inc. have been hit with
some hefty fines, but a closer look shows that for these tech
giants, the penalties aren't as huge as they seem.
The Federal Trade Commission recently fined Facebook $5 billion
to settle allegations that the company violated a 2012 order from
the agency by deceiving users about the privacy of their data. The
penalty is equivalent to about 16% of the company's 2018 operating
expenses, the day-to-day cost of running the business.
Put another way, it amounts to 59 days of ordinary expenses such
as research and development spending, marketing and administrative
costs for the social-media giant. Facebook reported holding about
$13.9 billion in cash and equivalents at the end of June, plus
$34.7 billion in marketable securities.
Other recent fines imposed on Facebook were smaller. The $100
million Facebook agreed to pay to settle allegations by the
Securities and Exchange Commission that the company had
inadequately warned investors about misuse of user data, works out
to just over a single day's operating expenses. A fine over privacy
violations, imposed by the U.K.'s Information Commissioner's Office
in October -- valued then at $645,000 -- amounts to about 11
minutes of operating expenses.
A Facebook spokeswoman declined to comment about the
settlements, and the company agreed to settle the FTC and SEC
investigations without admitting or denying guilt. After the U.K.
penalty, Facebook said it disagreed with some of the agency's
findings but acknowledged it should have done more to investigate
and act on complaints years before.
In a news release about the FTC settlement, Facebook described
its handling of the privacy issues that gave rise to the FTC
investigation "a breach of trust between Facebook and the people
who depend on us to protect their data."
Facebook has said other aspects of the settlement -- including
terms requiring the company to document and assess potential
privacy risks and CEO Mark Zuckerberg to certify that the company
is meeting its privacy commitments -- are more significant than the
"We have a responsibility to protect people's privacy," Mr.
Zuckerberg said in a post last week on the company's social-media
platform. "We already work hard to live up to this responsibility,
but now we're going to set a completely new standard for our
Financial penalties typically are meant to discourage further
misbehavior or make victims whole, said Nell Minow, vice chair of
ValueEdge Advisors, a corporate-governance consulting firm for
"That second one is out the window -- no one is getting their
information back," Ms. Minow said. "As for the first one, you have
to add another zero onto it to make it painful enough."
FTC Chairman Joe Simons called the $5 billion Facebook fine
significant compared with prior U.S. and global privacy penalties.
"The enormity of this penalty resets the baseline for privacy cases
and serves as an important deterrent for future order violations,"
he said in announcing the penalty.
This spring, European antitrust regulators fined Google $1.7
billion amid allegations that the search engine prevented rivals'
ads from displaying on some webpages. The total amounts to 1.5% of
Alphabet's 2018 operating expenses, or less than a week's worth.
Alphabet reported holding about $16.6 billion in cash and
equivalents at the end of June, as well as $104.5 billion in
In addition, a $5 billion fine imposed in July 2018 by the
European Union's antitrust regulator, which said Google had abused
the dominance of its Android operating system to promote its search
engine, was just under 17 days' worth of operating expenses. And a
June 2017 fine of $2.7 billion by EU antitrust regulators, over
Google's comparison-shopping service, was the equivalent of 12
An Alphabet spokeswoman declined to comment.
This spring, Alphabet stressed its cooperation with European
regulators and said it would let Android users in Europe choose
which browser and search apps they use. At the time of the earlier
European penalties, Alphabet said the decisions ignored competition
between its Android operating system and Apple's iOS and
underestimated the value users get from its shopping ads.
For both Facebook and Alphabet, the penalties are smaller when
measured against the total value of the companies, rather than
annual operating expenses.
Facebook's recent fines, combined, amount to about 0.9% of the
company's recent market capitalization, which is $559 billion based
on Monday's closing share price, and just under 6% of its
stockholders' equity -- a measure of corporate net worth that
represents the difference between a company's assets and its
liabilities. Alphabet's $9.4 billion in EU fines equate to about
1.1% of its recent market capitalization, which is $860 billion
based on Monday's closing share price, and about 4.9% of its
stockholders' equity as of June 30.
Write to Theo Francis at firstname.lastname@example.org
(END) Dow Jones Newswires
July 30, 2019 11:04 ET (15:04 GMT)
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