Facebook Q2 Weathers Fines And Antitrust Probes

Despite putting up another earnings beat in Q2 2019, there were reasons for Facebook to worry — apart from its financial results, Facebook also got to tell the world about the $5 billion fine levied against it by the FTC and the two different antitrust cases the social media giant has recently found itself wrapped up in.  And perhaps bigger than the fine itself are all the new ideas and policies that CEO Mark Zuckerberg announced would be going along with it.

“We’re making some major changes to how we build our services and run this company. This will require investing a significant amount of our engineering resources in building tools to review our products and the ways we use data,” Zuckerberg told investors early in the post-earnings release call, before noting that these changes will have effects on more than just Facebook’s relationship to consumer data and privacy.  

Some of those changes include creating the role of Chief Privacy Officer, hitting reset on how and when it allows app developers to access data and, according to Zuckerberg, shipping out new products at a slower pace, “especially while we’re getting this up and running.”

But that fact that the times, they are a changin’ at Facebook does not seem to have overly alarmed investors — Facebook’s shares initially bounced 4 percent in after-hours trading, buoyed by a stronger-than-expected quarterly performance (though there was some reversal of that trend later in the evening, FB will likely still be above Wednesday’s close when the market opens Thursday).

A quick look at Facebook’s performance by the numbers explains the investor enthusiasm.  The Menlo Park California-based firm reported Q2 net income of $2.6 billion, or 91 cents a share — down from the $1.74 a share in the year-ago period.  This is where the $2 billion in fines from Q2 and the $3 billion held over from Q1 took the biggest bite out of Facebook. Minus those two charges, Facebook earnings would have come in at $1.99 per share.

Revenue was up 28 percent to $16.9 billion — a pick-up on the $13.23 billion reported at this time in 2018. Of that $16.9 billion, $16.6 billion derived from ad revenue which, according to COO Sheryl Sandberg, was up 28 percent. North America and Asia-Pacific led in ad growth with 30 percent increases, followed by Europe’s 25 percent uptick.  But while revenue was up, average ad price declined 4 percent — though the number of ad impressions increased by 13 percent. 

“Similar to last quarter, impression growth was primarily driven by ads on Instagram Stories, Instagram Feed, and Facebook News Feed. The year-over-year decline in average price per ad reflects an ongoing mix shift towards Stories ads and geographies that monetize at lower rates,” Sandberg told investors. 

Prior to the release, analysts has predicted a $1.87 a share on revenue of $16.5 billion on average.

Facebook daily active users reached 1.59 billion, an 8 percent increase over this time last year — pushed largely by growth in India, Indonesia and the Philippines.  Taking users across all of its platforms — Facebook, Instagram, WhatsApp and Messenger — the greater Facebook community has 2.7 billion members, 2.1 billion of which use at least one of Facebook’s services each day.

Zuckerberg also dedicated a portion of his call to investors talking up Facebook’s ongoing expansion into the world of payments and commerce, particularly in the form of Instagram Shopping, the Facebook Marketplace and the Libra cryptocurrency project. 

“Payments is part of this that I’m particularly excited about. When I look at the kinds of private interactions we can make easier, payments may be the most important for the long term,” Zuckerberg noted. “In the future, we’ll enable people to use the same payments account to send money to friends and businesses on WhatsApp, shop on Instagram, or make transactions on Facebook. Being able to send money as easily as you can send a photo will open up new opportunities for businesses.”

Zuckerberg also dedicated some time to talking up the Libra project, though he had no new information to offer. He did reiterate the cryptocurrency’s goal of empowering “billions of people around the world” and the many possibilities open to both Facebook and the Libra Association.  He also reaffirmed their commitment to working with regulators to address their concerns pre-launch.

In fact, a generally positive take on regulators and regulation bubbled up a few times during the call, despite the fact that Facebook is now facing antitrust investigations from both the Justice Department and FTC.  Zuckerberg told analysts he believes a regulatory framework needs to be put in place, lest the frustration with the tech industry continues to grow.