Facebook Inc. FB, a major social media platform, said on Wednesday that despite recording a significant Federal Trade Commission privacy charge, revenues for the second quarter outperformed analyst estimates on continued growth in the user base and high average revenue per user.
The Menlo Park, California-based company reported net income of $2.616 billion, or 91 cents in earnings per share, compared to net income of $5.106 billion, or $1.74 in earnings per share, in the prior-year quarter. Excluding the privacy charge, adjusted net earnings of $1.99 per share outperformed the Refinitiv consensus estimate of $1.88 per share. Likewise, revenues of $16.886 billion outperformed the consensus estimate of $16.5 billion.
Company updates on FTC settlement charge and further updates to privacy and security
Facebook warned in its first-quarter earnings report that the company “reasonably estimated” a probable loss and recorded a $3 billion accrued expense in connection to the FTC privacy probe and that such losses could range between $3 billion and $5 billion. On Wednesday, CEO Mark Zuckerberg said in a statement that the company has agreed to pay a $5 billion fine to the FTC, the high end of the guidance range.
Zuckerberg detailed several initiatives to further protect user privacy, including new privacy protections at every step and increased monitoring for privacy abuse. Additionally, Zuckerberg will sign detailed compliance reports from the FTC once per quarter.
The CEO further announced during the earnings call that Facebook nominated Michael Protti as chief privacy officer, someone that Zuckerberg said in a Facebook post is “one of the most experienced product leaders.” Protti, who will lead the privacy committee of the board, will report to Zuckerberg and assist with the FTC compliance reports.
User base remains strong
For the quarter ending June 30, Facebook reported 1.59 million daily active users and 2.41 million monthly active users, both in line with consensus estimates from FactSet. The highest increase in daily active users and monthly active users occurred in the Asia-Pacific and Rest of World regions. Chief Financial Officer Dave Wehner said during the earnings call that daily active user growth in India, Indonesia and the Philippines contributed to overall daily active user growth.
Stock rises in aftermarket trading
While the stock opened lower then rebounded during the day, shares of Facebook increased at least 1.5% in after-hours trading as the company outperformed top-line and bottom-line estimates. The Nasdaq closed at 8,321.50, a new record.
Despite the company’s privacy probe, GuruFocus ranks Facebook’s financial strength and profitability 9 out of 10 on several positive indicators, which include robust interest coverage, expanding profit margins, debt ratios that are outperforming over 90% of global competitors and a return on assets that is outperforming 83.26% of global competitors.
Gurus with large holdings of Facebook include Spiros Segalas (Trades, Portfolio) and Chase Coleman (Trades, Portfolio)’s Tiger Global Management.
Disclosure: No positions.
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