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Facebook reserves $ 3B for FTC fines, but continues to grow with 2.38B of users in Q1

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A massive penalty looms over Facebook head, but otherwise I had a very strong earnings report Q1. Facebook reached 2.38 billion monthly users, 2.5 percent more than 2.32 billion in the fourth quarter of 2018 when it grew 2.2 percent, and now has 1.56 billion daily active users, 2.63 percent more than the 1.52 billion in the last quarter when it grew by 2 percent. Facebook earned $ 15.08 in revenue, up 26% year-over-year compared to Refinitiv consensus estimates of $ 14.98 billion in revenue.

Facebook recorded earnings per share of $ 0.85 compared to estimates of $ 1.63 EPS. However, that is because Facebook has reserved $ 3 billion to cover a possible FTC fine that is still being resolved. Without that fine, I would have had an EPS of $ 1.89. Despite the reservation, Facebook still obtained $ 2,429 billion in profits, although that is less than the $ 4,988 of the previous year and $ 6,8 billion in the fourth quarter of 2018.

Facebook’s share price rose 8.3 percent to $ 197.84 after closing before earnings at $ 182.58, well above its recent low of $ 124.06 in December. It seems that Wall Street already has a price on the possible fine of the FTC. Facebook has agreed to strict supervision of how it handles user privacy in an agreement with the FTC in 2011. It promised not to misrepresent its privacy practices or change privacy controls without the user’s permission, and is now negotiating the fine for breaking potentially those terms.

Facebook wrote in its statement of earnings on the FTC fine that:

“In the first quarter of 2019, we reasonably estimated a probable loss and recorded an accumulation of $ 3.0 billion in relation to the FTC’s query on our platform and the user data practices, whose accumulation is included in the expenses accumulated and other current liabilities in our account. Condensed consolidated balance. We estimate that the loss range in this matter is from $ 3.0 billion to $ 5.0 billion. “The matter remains unresolved, and there can be no assurance as to the timing or terms of any final result.”

It is possible that Facebook will escape with a minor fine that would probably continue to reduce Google’s $ 22.5 million fine for violating a FTC privacy agreement. But you may also have to drag a future quarter of earnings if the fine varies up to $ 5 billion or more. Although Facebook has $ 45.2 billion in cash and securities available to pay that fine and make the necessary acquisitions. The number of Facebook employees grew 36% year-on-year to 37,773, since it is part of their security team, but still has an operating margin of 22 percent.

Facebook has managed to maintain its proportion of 66 percent of daily and monthly users, which shows that people do not necessarily use it less despite the negative reaction. It added 39 million daily users, compared to the addition of Snapchat of 4 million in the first quarter. But Facebook did not surpass its account of 186 million daily users in the US. UU And Canada, where it stuck last quarter, but at least added 4 million in its lucrative European market, in addition to having big gains in Asia-Pacific and the rest. Of the regions of the world. In terms of monetization, Facebook achieved modest gains in average revenue per user in all markets compared to the third quarter of 2018 (excluding the fourth quarter charged holiday). Europe did especially well, growing ARPU 8.2 percent.

By moving away, Facebook now has more than 2.7 billion total users in their Facebook, Messenger, Instagram and WhatsApp family, just like in the last quarter. 2,100 million people use at least one of these applications daily, compared to 2,000 million in the last quarter. The Instagram Stories, the WhatsApp Status and Facebook Stories in Facebook and Messenger combined now have 500 million daily users. Facebook also has 3 million advertisers who buy Stories ads in their applications, so the ephemeral format will probably start to provide significant revenue soon.

Color of earnings call

In March, Zuckerberg announced plans for a massive Facebook review focused on privacy to turn it from a simple city into a “living room”. That means unifying your messaging applications with a backend that supports end-to-end encryption and promoting efemerality in content sharing and communication. That could help dissuade orders for regulation, make Facebook more difficult to separate and help it stay ahead of its competitors like Snapchat, but it will also be a massive product and engineering company.

Today, Zuckerberg focused on providing more details to this plan to expand privacy, encryption, impermanence, security, interoperability and secure data storage. He stressed that, since people traditionally spend more time communicating and consuming content privately than publicly, strengthening Facebook’s “living room” could boost their business. Zuckerberg pointed out that since Facebook no longer uses messaging content for ad targeting and recent content is more useful for its business, encryption and impermanence should not be a big risk either. Refusing to store data in countries with poor privacy records could lead to Facebook being banned there, which Zuckerberg admitted is a major commercial threat, but has faced content policies for years.

In fact, impermanence is already making money for Facebook. He said that Instagram Stories was the largest contributor of additional ad impressions in this quarter. And while the Facebook and Instagram feeds are already full of ads with little space for more, Facebook says there is still room to significantly increase the load of Instagram Stories ads.

Another highlight of the call was Zuckerberg’s discussion of Facebook’s payment strategy. He confirmed that Facebook plans to build ways for people to pay merchants through their messaging applications. “So I think what we’re going to end up seeing is increasing payments, which is going to end up being something that we do country by country.” . . The objective is to have something in which you can make discoveries through platforms similar to those in urban centers, such as Instagram and Facebook, and then you can complete the transactions and track the companies individually and have a continuous relationship through Messenger and WhatsApp. ”

This is the first earnings report for a full quarter after Facebook’s worst security breach in September affected 50 million users, shaking confidence in the privacy and security of the social network. It is also the first full quarter in which Facebook sold its own branded hardware: its video chat device Portal, which was well received by critics, except for the fact that it was created by Facebook.

However, the defining history is still Facebook’s struggle with claims that its user research efforts and developer platforms compromised user privacy and ruined competitors in search of growth. That includes the great TechCrunch scoop that Facebook was paying teenagers to sniff their data with a VPN application, which eventually led Facebook to shut down its Onavo user surveillance applications. The fact that Facebook is not losing a lot of users after years of sustained scandals is proof of how deeply it has been woven into people’s lives.

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