By Jeremy C. Owens, MarketWatch
Facebook Inc. shares jumped more than 7% in after-hours trading Wednesday, even as the company said it expects to pay a multibillion-dollar fine to the Federal Trade Commission.
Facebook took a $3 billion charge in the first quarter, as it “reasonably estimated” that it will be required to pay that much as the FTC looks to punish the company for violating a consent decree on user privacy. Without that charge, Facebook would have easily topped earnings estimates, so after a brief decline in shares during after-hours trading, they jumped back up.
“We estimate that the range of loss in this matter is $3 billion to $5 billion,” Facebook disclosed in its news release. “The matter remains unresolved, and there can be no assurance as to the timing or the terms of any final outcome.”
Amid a constant stream of negative headlines throughout 2018, Facebook /zigman2/quotes/205064656/composite FB +1.98% managed to not only stay afloat but also continue to thrive, with record profit, revenue and user numbers. In the first three months of 2019, amid talk of consequences for Chief Executive Mark Zuckerberg specifically and continuing foibles such as lax internal password storage, the social-media giant continued to defy expectations of a financial penalty for its misdeeds, according to Wednesday’s earnings report.
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In a conference call Wednesday afternoon, Zuckerberg summarized his recent plans to focus on a privacy-focused social network and his call for regulation of the internet. He did not mention the FTC fine or reports that he would be personally targeted by the agency.
“I understand that any regulation may hurt our business, but I think it’s necessary,” Zuckerberg said. “Getting these issues right is more important than our interests, and I believe that regulation will help establish trust when people know that the right systems of governance and accountability are in place.”
The FTC fine could be an important turning point for Facebook’s continued success, according to eMarketer principal analyst Debra Aho Williamson, who is concerned that any settlement may include more than money.
“Advertisers should take note of Facebook’s revelation that it set aside $3 billion in the quarter to deal with the FTC investigation of its platform,” Williamson wrote in an email. “This is a significant development, and any settlement with the FTC may impact the ways advertisers can use the platform in the future.”
When asked by an analyst in the conference call what changes to the business model could result from an FTC settlement, Chief Financial Officer David Wehner said he couldn’t comment “as this is an ongoing matter,” but he did later say that potential regulatory changes were part of Facebook’s forecast.
“We continue to expect that our revenue growth rates will decelerate sequentially throughout 2019 on a constant currency basis,” Wehner explained in Facebook’s version of a forecast. “In addition, we anticipate ad targeting-related headwinds will be more pronounced in the second half of 2019.”
Facebook reported first-quarter profit of $2.43 billion, or 85 cents a share, on sales of $15.08 billion, after posting earnings of $1.69 a share on sales of $11.97 billion in the same quarter a year ago. Net income would have been $5.43 billion, or $1.89 a share, without the charge for the expected FTC fine. Analysts on average expected earnings of $1.62 a share on revenue of $14.98 billion, according to FactSet.
User numbers also continued to grow, with Facebook reporting monthly active users of 2.38 billion, up 8% from last year, and daily active users of 1.56 billion, also up 8%. Analysts on average projected that Facebook’s monthly active users would rise by about 54 million sequentially and 178 million year-over-year, to 2.37 billion, with growth in all geographic regions, according to FactSet. Daily active users were projected to rise to 1.56 billion, from 1.45 billion a year ago and 1.52 billion at the end of 2018.
Despite all of its problems, Facebook shares have gained more than 14% in the past year, topping the 11% growth of the S&P 500 index /zigman2/quotes/210599714/realtime SPX +2.62% . Shares ended Wednesday with a 0.7% decline at $182.58, then topped $200 a share at times in after-hours trading before ending the extended session higher than $196. Facebook has not closed higher than $190 a share since last July.