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Facebook Investors Shrug Off $5 Billion Fine, New Investigations as Q2 Earnings Beat Expectations

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Richard Drew/AP/REX/Shutterstock

Facebook investors had their eyes firmly on the company’s Q2 numbers Wednesday, ignoring anything and everything that could have clouded the pretty picture: The company’s stock went up as much as 4% in after-hours trading after it revealed that it once again beat the expectations of the market in its most recent quarter.

That’s despite the fact that Facebook used its earnings release to warn that it continues to be under investigation by regulators. “In June 2019, we were informed by the FTC that it had opened an antitrust investigation of our company,” the company said. “In addition, in July 2019, the Department of Justice announced that it will begin an antitrust review of market-leading online platforms.”

Those two investigations come in addition to a separate, just-concluded FTC privacy investigation. Facebook’s earnings report came hours after the FTC announced a settlement with the company that includes a $5 billion fine over privacy charges, as well as the formation of an independent oversight board. Facebook had anticipated that fine last quarter, setting aside $3 billion for a future settlement.

Mark Zuckerberg painted the settlement as a positive step during the company’s earnings call, saying it paved the way for Facebook to develop products under a clear framework going forward. However, he also cautioned that it would take some time to implement, which could have some impact on product development. “I expect it will take us longer to ship new products,” he said.

Facebook CFO Dave Wehner cautioned that Facebook’s revenue growth would decelerate in the fourth quarter as well as 2020 due to regulatory headwinds as well as a bigger focus on privacy.

The company generated $16.62 billion in revenue in Q4 of 2019, compared to $13.23 billion during the same quarter a year ago. Its net profit for the quarter was $2.62 billion, compared to $5.1 billion in Q2 of 2018. This translates to diluted earnings of $0.91 per share ($1.74 in Q2 2018).

Earnings were impacted by the allocation of another $2 billion toward that $5 billion FTC fine, as well as $1 billion toward potential tax liabilities stemming from a current dispute about the accounting of stock-based compensation. Without those, earnings per share would have been $1.99.

Analysts had expected earnings of $1.87 per share on revenue of $16.51 billion.

Facebook also announced solid audience growth numbers for the quarter, disclosing that it reached 1.59 billion daily active users on its core platform in June. Monthly actives were 2.41 billion at the end of June, which means that both daily and monthly active user metrics grew 8% year-over-year. Altogether, Facebook, Instagram, WhatsApp or Messenger are now being used by 2.1 billion people every day. 2.7 billion people use at least one of these apps every month.

Facebook still generates the vast majority of its revenue with advertising, with mobile advertising making 94% of all of the company’s ad revenue. However, the company is also growing its non-ad revenue to $262 million for the quarter, up from $193 million in Q2 of 2018.

This includes VR hardware revenue; Facebook introduced its wireless all-in-one Oculus Quest headset in Q2. “This is an important milestone,” Zuckerberg said during Wednesday’s earnings call, while at the same time cautioning that it would require some time to scale this part of the business.