Facebook and User Privacy: FTC Fine of up to $5 Billion

Privacy Fine

Facebook said it expects a fine of up to $5 billion from the Federal Trade Commission, which is investigating whether the social network violated its users’ privacy.

The company set aside $3 billion in its quarterly earnings report Wednesday as a contingency against the possible penalty but noted that the “matter remains unresolved.”

The one-time charge slashed Facebook’s first-quarter net income considerably, although revenue grew by 25% in the period. The FTC has been looking into whether Facebook broke its own 2011 agreement promising to protect user privacy.

Investors shrugged off the charge and sent the company’s stock up nearly 5% to $190.89 in after-hours trading. EMarketer analyst Debra Aho Williamson, however, called it a “significant development” and noted that any settlement is likely to go beyond a mere dollar amount. “(Any) the settlement with the FTC may impact the ways advertisers can use the platform in the future,” she said.

Facebook has had several high-profile privacy lapses in the past couple of years. The FTC has been looking into Facebook’s involvement with the data-mining firm Cambridge Analytica scandal since last March. That company accessed the data of as many as 87 million Facebook users without their consent.

In addition to the FTC investigation, Facebook faces several others in the U.S. and Europe, including by the Irish Data Protection Commission , and others in Belgium and Germany. Ireland is Facebook’s lead privacy regulator for Europe.

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The social network said its net income was $2.43 billion, or 85 cents per share in the January-March period. That’s down 51% from $4.99 billion, or $1.69 per share, a year earlier, largely as a result of the $3 billion charge.

Revenue grew 26% to $15.08 billion from a year earlier. Excluding the charge, Facebook earned $1.89 per share.

Analysts polled by FactSet expected earnings of $1.62 per share and revenue of $14.98 billion.

Facebook’s monthly user base grew 8% to 2.38 billion. Daily users grew 8% to 1.56 billion.