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Legal penalties dent Facebook profit; revenue, user base grows
[SAN FRANCISCO] Facebook on Wednesday reported that its profit in the recently ended quarter plummeted due to costs of a US privacy settlement in a quarterly update that was largely better than expected.
Profit in the second quarter fell 49 per cent from a year ago to US$2.6 billion while revenues increased 28 per cent to US$16.9 billion.
The lower profits were due in part to setting aside an extra US$2 billion to cover the cost of a massive settlement with US regulators on privacy and data protection in addition to monies already placed in reserve.
The US$5 billion settlement announced by the Federal Trade Commission calls to revamped federal oversight of the social network's privacy policies.
Facebook also will be required to conduct a privacy review of every new or modified product, service, or practice before it is implemented, including for its WhatsApp and Instagram services.
In the earnings report, the leading online social network beat market expectations regarding revenue and user growth, and shares rose slightly in after-hours trades that followed release of the earnings figures.
"We had a strong quarter and our business and community continue to grow," said Facebook chief executive Mark Zuckerberg.
The number of people using Facebook monthly grew eight percent to 2.41 billion in the quarter that ended June 30.
"This company has repeatedly shown that it can grow both its ad revenue and its user base, even in the face of enormous challenges," said eMarketer analyst Debra Aho Williamson.
"Today's earnings release demonstrates that it still has that power."
Williamson said that for the moment, advertisers "remain dedicated to Facebook despite its problems. However, they are also paying more attention than ever to those problems."
The number of monthly users topped 2.7 billion people when taking into account Instagram, WhatsApp and Messenger along with the main social network, according to Facebook.
Ranks of Facebook employees had grown 31 per cent to 39,651 by the end of the quarter. The Silicon Valley-based company has been hiring aggressively, particularly workers focused on security, privacy and eliminating content deemed unacceptable.
Also factored into the quarterly results was a tax expense of US$1.1 billion stemming from a court decision on treatment of stock-based compensation.
Facebook shares gained 1.1 per cent during Wednesday's trading session and swung slightly higher in after-hours exchanges following the earnings release.