As part of Facebook’s first quarter results released last night, the social networking giant revealed that it’s set aside billions of dollars for an accounting accrual to pay an enormous fine it expects the U.S. FTC to impose on the company over its many privacy transgressions in the last several years. Facebook wrote: At the first quarter of 2019, we reasonably estimated a probable loss and recorded an accrual of $3.0 billion in relation to the query of the FTC to our platform and user information practices, which accrual is included in accrued expenses along with other current liabilities on our condensed consolidated balance sheet.
We estimate the range of loss in this matter is $3.0 billion to $5.0 billion. The matter remains unresolved, and there can be no assurance as to the time or the terms of any final result. The accrual dinged Facebook’s bottom line, with the firm posting net income of just $2.4 billion, or $0.85 per share, in the first quarter. Investors were largely unfazed, nevertheless sending shares higher. Wallpaper on the FTC probe. The FTC had originally opened its investigation on Facebook in March 2018 following the revelations that Cambridge Analytica was able to access user information on almost 90 million Facebook users.
Acting Director of the FTC’s Office of Consumer Protection in the time stated the bureau takes seriously recent media reports raising considerable concerns about the privacy practices of Facebook. Because the probe has neared completion, reports surfaced in latest month that Facebook was in negotiations with the FTC. A fine of $3 billion to $5 billion could be a record, possibly representing the greatest confidentiality related penalty imposed by the bureau, according to The Washington Post. On the conference call, CFO Dave Wehner provided a bit of detail, but wasn’t able to say much because negotiations are still ongoing: Look, the accumulation is an accounting entry related to the ongoing settlement discussions that we are having with the FTC.
This matter isn’t resolved. Thus the actual amount of payment remains unclear. We’re estimating this range of loss to be $3 billion to $5 billion. Can not really comment further as this is an ongoing matter. We booked in the very low end of the scope according to the applicable accounting advice. So really a lot more to add on that front. Investors are not concerned. While that fine could be a record setter for the government service, it is a comparatively small ding in Facebook’s entire financials. Investors were much more impressed by the truth that total revenue jumped 26 percent to $15.1 billion, the company’s privacy scandals haven’t hurt user participation, and Facebook’s family audience metric held steady at 2.7 billion monthly active users. There could even be more to come: Canadian regulators announced today that Facebook broke privacy laws related to the Cambridge Analytica scandal.