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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.

Also Read- Improve Logistics and Retain Customers in Five Steps

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.

Also Read- Sharenting Puts Child’s Online Privacy and Safety at Risk

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)

Next Story

Social Media Giant Facebook Sues Chinese Company Over Alleged ad Fraud

According to a report in CNET, Facebook said it has paid more than $4 million in reimbursements to victims of these hacks

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facebook, WhatsApp, stories, feature
An iPhone displays the app for Facebook in New Orleans, Aug. 11, 2019. VOA

Facebook has sued a Chinese company for allegedly tricking people into installing a malware, compromising peoples accounts and then using them to run deceptive ads.

Facebook blamed ILikeAd Media International Company Ltd. and two individuals associated with the company — Chen Xiao Cong and Huang Tao – for the fraud.

The defendants deceived people into installing malware available on the Internet. This malware then enabled the defendants to compromise people’s Facebook accounts and run deceptive ads promoting items such as counterfeit goods and diet pills, the social media giant said in a blog post.

The defendants sometimes used images of celebrities in their ads to entice people to click on them, a practice known as “celeb bait”, according to the lawsuit filed on Wednesday.

In some instances, the defendants also engaged in a practice known as cloaking, Facebook said.

Social Media, Facebook, Authenticity, Posts
The social media application, Facebook is displayed on Apple’s App Store, July 30, 2019. VOA

“Through cloaking, the defendants deliberately disguised the true destination of the link in the ad by displaying one version of an ad’s landing page to Facebook’s systems and a different version to Facebook users,” said Facebook’s Jessica Romero, Director of Platform Enforcement and Litigation and Rob Leathern, Director of Product Management, Business Integrity.

Cloaking schemes are often sophisticated and well organised, making the individuals and organisations behind them difficult to identify and hold accountable.

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As a result, there have not been many legal actions of this kind.

“In this case, we have refunded victims whose accounts were used to run unauthorised ads and helped them to secure their accounts,” they wrote.

According to a report in CNET, Facebook said it has paid more than $4 million in reimbursements to victims of these hacks. (IANS)