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Facebook Anticipates It Will Have to Pay FTC Up to $5 Billion for Privacy Violations

Facebook executives expect that the company will have to pay as much as $5 billion as a result of an ongoing FTC investigation into its privacy practices, they revealed in Facebook’s Q1 2019 earnings release Wednesday. As a result of these anticipated charges, Facebook set aside $3 billion in the quarter, which significantly impacted its earnings per share.

“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,” the company said in its earnings release.

Facebook chief financial officer David Wehner briefly addressed the issue during Wednesday’s earnings call, saying that the company had ongoing settlement discussions with the agency. “This matter is not resolved,” he said, adding that the actual amount that Facebook will have to pay was still uncertain.

The company delivered this news as it released a set of otherwise strong earnings numbers: Facebook generated revenue of $15 billion during Q1 of 2019, compared to close to $12 billion during the same quarter last year. Net income for the quarter without the $3 billion charge was $5.43 billion, compared to nearly $5 billion a year ago.

Including the charge, net income was $2.43 billion. This equals earnings per share of $0.85. Analysts had expected earnings per share of $1.62 on revenue of $15 billion.

Investors were apparently not too disturbed by the anticipated fine, and sent Facebook’s share price up more than 4% in after-hours trading. They might have taken some solace in Facebook’s continued growth:

The company revealed Wednesday that it reached 1.56 billion daily active users in March, which was up 8% year-over-year. Facebook ended March with 2.38 billion monthly active users, also up 8% year-over-year. Across its most popular apps, including Instagram, Whatsapp, Messenger and Facebook proper, the company reached an estimated 2.1 billion users ever day, and 2.7 billion users every month.

Combined with a fine or settlement amount that still leaves Facebook solidly in the black for the quarter, these numbers suggest that Facebook may emerge from its privacy scandals relatively unscathed.

Facebook CEO Mark Zuckerberg used the company’s earnings call Wednesday afternoon to address another investor concern: that Facebook’s move towards private messaging will be damaging to its ad revenue.

While Zuckerberg had in the past couple of months championed private messaging as the future of communication, he argued on Wednesday that this wouldn’t necessarily kill products like Facebook’s newsfeed. “Facebook and Instagram… will only to continue to grow in importance,” he said, adding that there was room for both “public and private spaces” on the internet.

Zuckerberg said that encrypting private messaging wouldn’t have any impact on Facebook’s business. Strengthening private messaging could theoretically cannibalize some of Facebook’s legacy products, he acknowledged. But in the end, Facebook could also grow its audience by syphoning messaging users away from other services.

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