Facebook Inc on Wednesday reported that its quarterly profit plummeted due to the cost of a US privacy settlement and forecast that regulation would slow its moneymaking ad machine.
Profit in the second quarter fell 49 percent from a year ago to US$2.6 billion, while revenue increased 28 percent to US$16.9 billion.
The lower profits were due in part to Facebook setting aside an extra US$2 billion to cover a massive settlement with US regulators on privacy and data protection.
Photo: Reuters
The US$5 billion settlement announced by the US Federal Trade Commission calls for revamped federal oversight of the social network’s privacy policies.
Facebook would also be required to conduct a privacy review of every new or modified product, service or practice before it is implemented, including for its Instagram and WhatsApp services.
In the earnings report, the leading online social network beat market expectations on revenue and user growth, and shares rose slightly in after-hours trading that followed the release of the earnings figures.
“We had a strong quarter and our business and community continue to grow,” CEO Mark Zuckerberg said.
The number of people using Facebook monthly grew 8 percent to 2.41 billion in the quarter that ended on June 30.
The number of monthly users topped 2.7 billion when taking into account Instagram, WhatsApp and Messenger, along with the main social network, according to Facebook.
During an earnings call, Facebook executives said that regulation and efforts inside the company to ramp up privacy would be “headwinds” to ad targeting, which powers the company’s revenue.
Compounding the effect of controls such as the General Data Protection Regulation in Europe, and increased focus on privacy in operating systems and products are “creating headwinds that we think are going to impact us as we get later in the year and into 2020,” chief financial officer David Wehner said.
Privacy and compliance efforts also require significant investment in process, people and infrastructure, he added.
Zuckerberg renewed his call for legislators around the world to set clear, uniform standards on important issues such balancing free speech with fighting online bullying or election meddling.
He also reaffirmed his commitment to the social network’s quest to launch Libra cryptocurrency, despite pushback from governments and critics.
Facebook last month unveiled plans for Libra in an announcement that sparked fears of the unintended consequences of a loosely supervised global currency.
The Swiss Financial Market Supervisory Authority has already pledged to conduct oversight of the Geneva-based Libra Association that is to watch over the digital money, which is expected to debut next year.
“Facebook from a few years ago would have probably just showed up and tried to release a product on our own,” Zuckerberg said of Libra during a call with analysts.
The California-based company’s approach regarding sensitive territory is now to outline ideas and allow “a period of however long it takes” to get feedback and figure out the best path forward, he said.
“That’s certainly what we’re planning to do with Libra,” Zuckerberg said. “We are trying to provide a safe and stable and well-regulated product; that’s always been the strategy and we’ll continue to engage here.”
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