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New Data Privacy Rules to Slow Facebook’s Revenue Growth

While the quarterly results and the settlement with the U.S. Federal Trade Commission over privacy issues demonstrate significant progress

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Facebook, Data, Privacy
FILE - The entrance sign to Facebook headquarters in Menlo Park, Calif., Oct. 10, 2018. VOA

Facebook said Wednesday that new data privacy rules and forthcoming privacy-focused product changes would slow its revenue growth and significantly raise expenses, driving down its shares in after-hours trade even as quarterly revenue topped estimates.

The outlook came soon after the company agreed to pay $5 billion to settle a data privacy probe and disclosed that it faces a new U.S. government antitrust investigation.

While the quarterly results and the settlement with the U.S. Federal Trade Commission over privacy issues demonstrate significant progress in tackling two of Facebook’s biggest challenges, the newly disclosed FTC antitrust probe and the continuing privacy scrutiny show that hurdles remain on the road ahead. Facebook said the FTC had told it in June of the antitrust probe.

Shares of Facebook, which also owns WhatsApp and Instagram, fell 1% after hours to $202.50 after initially rising on its quarterly results. The shares have recouped most of the losses sparked a year ago on concerns of slowing usage and the costs of improving privacy, which had spurred the biggest ever one-day drop in Facebook shares.

Facebook, Data, Privacy
Facebook said Wednesday that new data privacy rules and forthcoming privacy-focused product changes would slow its revenue growth and significantly raise expenses. Pixabay

A ‘significant investment’

On Wednesday, Facebook’s chief financial officer, Dave Wehner, told analysts that the FTC settlement would require “significant investment” in people and technology. He said ad revenue would be affected by new privacy laws rolling out globally, changes in privacy rules by the operating systems on which Facebook relies, and the company’s tweaking of its own services.

Facebook has increased the number and variety of ads, which are the foundation of its business, as users gravitate toward private and interactive features such as Stories. It has responded to political and regulatory pressure by expanding programs and promises related to securing data and policing objectionable content.

The initiatives remain a drag on earnings, but the company’s wealth of information on its users remains valuable to advertisers.

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Facebook, which had set aside $3 billion in the first quarter to cover a regulatory settlement, said it took a $2 billion charge in the second quarter to account for the remainder of the $5 billion settlement with the FTC. The settlement is still subject to court approval.

Facebook also acknowledged in a statement the U.S. Justice Department’s announcement Tuesday of an “antitrust review of market-leading online platforms.”

Steady user numbers

For the second quarter, Facebook reported 2.7 billion monthly users and 2.1 billion daily users across Facebook, Messenger, Instagram and WhatsApp, both figures about the same as last quarter.

Facebook, Data, Privacy
The outlook came soon after the company agreed to pay $5 billion to settle a data privacy probe and disclosed that it faces a new U.S. government antitrust investigation. Pixabay

Quarterly revenue rose to $16.9 billion from $13.2 billion a year ago, beating analysts’ average estimate of $16.5 billion, according to IBES data from Refinitiv.

“News regarding FTC and data privacy, along with antitrust investigations and additional headline risks likely to continue to hang over the stock, but it looks like the platform still remains a very popular destination for the users,” Morningstar analyst Ali Mogharabi said in an email to Reuters.

US investigations 

Facebook has faced questions for the past three years from regulators and users worldwide over how a service designed to share news and events with friends and family has become a platform for spreading misinformation about politics, health and other subjects. A series of data breaches has prompted investigations in several countries.

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The U.S. Justice Department said Tuesday that it would examine complaints that some “search, social media, and some retail services online” are engaging in anti-competitive practices, an apparent reference to big tech companies including Facebook.

The FTC inquiry that was settled Wednesday stemmed from allegations that Facebook inappropriately shared information belonging to 87 million users with the now-defunct British political consulting firm Cambridge Analytica. A Netflix documentary about the scandal, “The Great Hack,” premiered Wednesday.

The fine, which some lawmakers have called “a slap on the wrist,” cut second-quarter profit to $2.6 billion, compared with $5.1 billion, a year earlier.

Excluding the fine and a $1.1 billion one-time tax expense, earnings would have been $1.99 per share, Facebook said.

The tax expense stemmed from a court ruling, in which the company was not involved, that it said required accounting changes for stock-based compensation.

Costs jumped 66% compared to a year ago, to nearly $12.3 billion, as Facebook continues to ramp up spending to improve content and security across its platforms.

Facebook has said it expects expenses and revenue growth to come back closer to even but several hurdles remain.

In emerging markets such as India, revenue is lagging behind Facebook’s number of users. Efforts to enter new businesses, such as recently announced plans for a cryptocurrency called Libra as part of a move into digital payments, have faced pushback from lawmakers and regulators.

Meanwhile, the company is developing additional hardware products, which can be more costly to build than apps.

There were bright spots in the second-quarter results. For instance, revenue from Europe accelerated for the first time in several quarters, growing 24% compared to 20% last quarter. (VOA)

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Social Media Giant Facebook Requires ‘Significant Work’ to Stop Political Bias

“We don’t allow content that might encourage offline harm or is intended to intimidate, exclude or silence people,” he added

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FILE - The logo for Facebook appears on screens at the Nasdaq MarketSite, in New York's Times Square, March 29, 2018. VOA

Facebook has released results of an independent internal audit conducted by a former Republican senator that found the social networking giant has been biased against conservatives and needs to do “significant work” to stop this.

Former Senator Jon Kyl, a respected Republican and his team at the law firm Covington and Burling met with more than 130 leading conservative politicians and organizations and produced the report.

Facebook has long been accused of bias against conservative viewpoints to appear on its platform

“Although these concerns appear across the political and ideological spectrum, members of the conservative community in particular are concerned that the Silicon Valley-based company’s admittedly liberal culture negatively influences the reach of conservative ideas and news.”

“Political conservatives, religious traditionalists, and others are increasingly feeling marginalised by cultural ‘gatekeepers’ such as social media, entertainment media, and academia,” the report said.

According to Nick Clegg, Vice President of Global Affairs and Communications at Facebook, the report also highlights the changes Facebook has made to address some of those concerns.

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FILE – Attendees walk past a Facebook logo during Facebook Inc’s F8 developers conference in San Jose, California, United States. VOA

“These include making our decisions more transparent by providing more information on why people are seeing specific posts on News Feed; ensuring Page managers can see when enforcement action takes place; launching an appeals process; and creating a new Oversight Board for content,” Clegg said in a statement late Tuesday.

This is the first stage of an ongoing process and Senator Kyl and his team will report again in a few months’ time.

“Facebook’s policies and their application have the potential to restrict free expression. Given the platform’s popularity and ubiquity, this is a danger that must be taken very seriously. Facebook insists that it is committed to safety, equal treatment and building community,” read the report.

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“Facebook has recognized the importance of our assessment and has taken some steps to address the concerns we uncovered. But there is still significant work to be done to satisfy the concerns we heard from conservatives,” it added.

Clegg said that “while we err on the side of free speech, there are critical exceptions”.

“We don’t allow content that might encourage offline harm or is intended to intimidate, exclude or silence people,” he added. (IANS)