Facebook Beats Earnings Expectations The Same Day It Gets Hit With A $5B FTC Fine

Facebook’s stock dipped slightly on Wednesday morning after the Federal Trade Commission formally announced its $5 billion dollar fine over privacy violations.

But by the time Facebook reported its second quarter earnings after the bell, the stock had recovered and then some. Facebook is up 3.2% after beating expectations and raking in the ad revenue.

And that’s despite the fact that Facebook is far from finished on the regulatory front. In June, Facebook was informed by the FTC that it had opened an antitrust investigation into the company that’s separate from the multibillion-dollar fine it just levied. And in July the Department of Justice followed suit with its announcement of plans to beging an antitrust review of Facebook and other large online platforms.

But back to the balance sheet, total ad revenue was $16.6 billion, with mobile making up the lion's share at 94% of the overall, a 3% uptick year over year. Facebook set aside $2 billion from its revenue this quarter to pay the FTC’s you’ve-been-bad bill, combined with $3 billion last quarter.

Monthly active users clocked in at 2.4 billion at the end of June, an 8% year-over-year increase.

“Now we have a clearer path forward, not just in terms of product and the business, but in terms of guidance from regulators that set clear expectations and give us a foundation to build on,” CEO Mark Zuckerberg told investors.

He made similar points at a company-wide meeting in Menlo Park following the FTC’s announcement.

“We’re going to change the way that we operate across the whole company,” Zuck told employees. “We’re going to change how we build products, and if we don’t, we’re going to be held accountable for it … this is what accountability looks like.”

Although Facebook seems to be weathering the news of its fine fairly well and overall use of its services is up, DAUs were flat in Europe quarter over quarter at 286 million (although up from 279 million year over year).

The sequential stagnation could be linked to the General Data Protection Regulation and other privacy challenges.

Still, revenue is accelerating in Europe, just at a slower rate than in North America and APAC. Revenue in Europe was just over $4.1 billion this quarter, up from $3.3 billion this time last year, which CFO Dave Wehner attributes to “lapping GDPR implementation.”

But Wehner also reiterated, as he’s been warning for quite some time, that investors should expect revenue deceleration coming down the pike this year and into 2020 due to “ad targeting-related headwinds,” aka, regulations such as and including the GDPR rolling out across the globe, an increased focus on privacy among operating systems and Facebook’s own product changes as “we put privacy front and center.”

In particular, Facebook’s agreement with the FTC, which involves a major expansion and revamp of the company’s privacy programs, will require significant investment in compliance, additional personnel and technical infrastructure which, in turn, “will make some of our existing product development processes more time consuming, difficult and costly,” Wehner said.

At the same time, Facebook’s isn’t making as much money from some of its newer and fastest-growing formats compared with its core products. Although ad impressions increased by 33%, the average price per ad actually decreased 4% across Instagram Stories, Instagram feed and even the Facebook news feed.

The year over year decline is thanks to the ongoing mix shift toward Stories and geographies that monetize at lower rates, Wehner said.

“Even though we’re seeing good impression growth, these impressions are flowing through at a lower price point than the way growth was driven in the prior year,” he said.

 

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