Facebook reports 28% revenue uplift and reveals second US anti-trust probe

Facebook: second-quarter revenue is up 28% year on year to $16.89bn
Facebook: second-quarter revenue is up 28% year on year to $16.89bn

Double FTC investigations cast shadow over better-than-expected Q2 results.

Facebook announced strong second-quarter results and that it is now facing a second investigation from the US competition enforcer, this time over possible anti-trust violations.

The social media giant's earnings announcement ended a rollercoaster 24 hours in which the US Federal Trade Commission announced it had reached a landmark $5bn (£4.4bn) settlement with Facebook over its privacy issues, and the Department of Justice announced an anti-trust review of the dominant tech platforms.

Facebook also confirmed during its Q2 earnings that it was facing an anti-trust probe from the FTC.

"The online technology industry and our company have received increased regulatory scrutiny in the past quarter. In June 2019, we were informed by the FTC that it had opened an anti-trust investigation of our company," the company said in a statement. 

The FTC’s settlement with Facebook came more than a year after the US regulator first announced it was investigating the social media network over its handling of user data. The investigation followed the 2018 Cambridge Analytica scandal, in which the data of 87 million Facebook users was improperly accessed.

The terms of the settlement also dictate that Facebook add new positions and practices to increase the transparency and accountability of how it handles user data, including a privacy committee, compliance officers and an independent assessor.

"We believe that there needs to be a regulatory framework in place," Facebook chief executive Mark Zuckerberg said on a call with analysts after the report. "My broader concern is that if that doesn’t get put in place, then frustration with the industry I think will continue to grow."

Zuckerberg has previously said during the Q1 earnings that while regulation "may hurt our business", it was "necessary" to "help establish trust".

The measures, which the FTC’s commissioners approved in a three-to-two vote, have been roundly criticised for not going far enough. Lawmakers and privacy experts have pointed out that the $5bn fine – while a record for the FTC – is not significant enough to Facebook’s bottom line, while the settlement does not dictate that Facebook make significant changes to its core business model.

In its second-quarter results later on Wednesday (24 July), the company said it recorded a $2bn charge in the quarter tied to the FTC settlement. It previously set aside $3bn.

But overall, the platform enjoyed a better-than-expected second quarter. It generated revenues of $16.89 billion for the quarter, up 28% compared with the same period in 2018.

This represents a slowdown from the 42% year-on-year growth it reported in Q2 2018.

Facebook’s profit margins were down, with a 27% operating margin in Q2 compared with a 44% margin during the same period a year earlier.

The platform’s daily active users (DAUs) and monthly active users (MAUs) both increased 8% year-on-year, to an average 1.59 billion and 2.41 billion as of 30 June.

Mobile advertising revenue represented approximately 94% of advertising revenue for the second quarter of 2019, up from approximately 91% of advertising revenue in the second quarter of 2018.

Its headcount was 39,651 as of June 30, 2019, an increase of 31% year-on-year.

Emarketer principal analyst Debra Aho Williamson said the results show that Facebook can continue to grow both its ad revenue and its user base "in the face of enormous challenges".

"Today’s earnings release demonstrates that it still has that power," she said. "We expect Facebook’s worldwide ad revenue will increase 22.5% this year. That’s a higher growth rate than for digital advertising as a whole, which we expect will increase 17.6%."

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