Facebook Says it May Be Fined Up to $5 Billion in FTC Privacy Probe
Facebook said Wednesday it expects to pay a fine of up to $5 billion related to the Federal Trade Commission’s probe into its data practices, which would mark the biggest penalty against a tech company in the agency’s history.
Facebook revealed the estimated fine—from $3 billion to $5 billion—as part of its first quarter earnings. But the actual amount is still unclear because the inquiry is still pending.
“This matter is not resolved so the actual amount of payment remains uncertain,” Dave Wehner, Facebook’s chief financial officer, said during a call with investors in which he declined to provide additional details.
Facebook has been in the F.T.C.’s crosshairs for some time after a series of privacy missteps that tarnished the company’s reputation and sent its executives, led by CEO Mark Zuckerberg, scrambling to clean up the mess.
The problems started last year after news leaked that Cambridge Analytica, a political data firm that harvested data from up to 87 million Facebook users to influence the 2016 U.S. presidential election. It continued with news that Facebook had suffered a major data breach.
In part, the troubles could violate Facebook’s 2011 agreement with the FTC that it would first obtain user consent before sharing their data with third parties. In the case of Cambridge Analytica, Facebook did not obtain explicit user consent.
Investors, wary about the possibility of an even bigger fine, seemed to be relieved that Facebook may end up paying $5 billion. They sent Facebook’s stock price up nearly 8% in after-hour trading to $196.39.
“It’s a big number, don’t get me wrong,” said Ron Josey, analyst at JMP Securities. “But at the same time, it’s nice to hear we might be near some sort of agreement so we can move on beyond this,” he said.
For Facebook, which has $45.24 billion in cash, such a fine would be manageable. But it’s unclear whether a penalty by the F.T.C. would also include restrictions on Facebook’s business or oversight of its operations, which could eat into the company’s highly profitable ad business.
“This is a significant development, and any settlement with the FTC may impact the ways advertisers can use the platform in the future,” said Debra Aho Williamson, analyst at marking research firm eMarketer.
The first-quarter earnings results paled in importance to the talk of the F.T.C.’s inquiry. The company said it had revenue of $15.08 billion, up 26% the year prior, versus the $14.97 billion that Wall Street expected. Meanwhile, profits were dragged down by $3 billion the company had set aside for expenses related to FTC’s investigation. Without the $3 billion charge, the company said first-quarter earnings would’ve been $1.89 per share, versus 85 cents with the expense.
Additionally, Facebook said it had 1.56 billion daily active users and 2.38 billion monthly active users across all of its products, which include Instagram, Messenger, and WhatsApp. Both numbers represent an 8% increase from the same quarter last year.