SAN FRANCISCO -- Facebook said Wednesday that it is under antitrust investigation by the Federal Trade Commission. The company made the announcement in its quarterly earnings announcement, just hours after the agency hit it with a record $5 billion fine and new oversight on its privacy practices.
Facebook said Wednesday that it was informed of the trade commission's antitrust investigation in June. On Tuesday, the Department of Justice also announced a broad antitrust investigation of technology companies. Though that agency didn't name any companies, antitrust concerns have long swirled around Apple, Amazon, Facebook and Google. Facebook also faces investigations in Canada and Europe as regulators seek to crack down on the growing power of these U.S. technology companies.
After Facebook's disclosure, the FTC confirmed the antitrust investigation but would not give details such as how long it has been underway.
While the FTC was known to be looking into Facebook antitrust concerns, it has not been previously reported that the agency had begun a full investigation.
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The fine is by far the biggest the FTC has levied on a tech company, though it won't make much of a dent for a company that had nearly $56 billion in revenue last year. And despite efforts by the agency's majority to get a unanimous vote, two of the five commissioners opposed the settlement and said they would have preferred litigation to seek tougher penalties.
"While the $5 billion fine is a record for the FTC, that speaks more to the lightness of the FTC's traditional penalties than it does to the effect on Facebook," said Siva Vaidhyanathan, a professor of media studies at the University of Virginia and author of Antisocial Media: How Facebook Disconnects Us and Undermines Democracy. "Facebook makes that much money in a couple of weeks."
The other terms of the settlement, he added, fail "to crack down on the core misbehavior of Facebook." Now that it's over, the company can "get back to business as usual," he said.
On Wednesday, the company reported stronger-than-expected revenue but lower earnings for the second quarter. The results were enhanced by higher advertising revenue and an ever-growing user base, though net income declined because of one-time expenses -- mainly the FTC fine.
Facebook said it earned $2.6 billion, or 91 cents per share, in the April-June period. That's down 49% from $5.1 billion, or $1.74 per share, in the same period a year earlier. Adjusted earnings were $1.99 per share. Analysts, on average, were expecting adjusted earnings of $2.11 per share, according to a poll by FactSet.
Revenue rose 28% to $16.9 billion from $13.2 billion. Analysts were expecting $16.5 billion.
Facebook had 2.41 billion monthly active users as of June 30, an increase of 8% from a year earlier.
Facebook booked $2 billion in one-time expenses to pay for the remainder of the FTC fine after setting aside $3 billion in the first quarter. The $5 billion fine, announced Wednesday morning, stems from the FTC's investigation into Facebook's privacy violations after the Cambridge Analytica scandal.
The FTC opened an investigation into Facebook last year after revelations that data-mining firm Cambridge Analytica had gathered details on as many as 87 million Facebook users without their permission. The agency said Wednesday that after its yearlong investigation of the company, the Department of Justice will file a complaint alleging that Facebook "repeatedly used deceptive disclosures and settings to undermine users' privacy preferences."
Under the privacy settlement, the company must, in addition to paying the fine, end certain types of data collection, evaluate the privacy impact of future offerings, certify compliance regularly and restructure its board to empower independent directors, which would end Chief Executive Officer Mark Zuckerberg's final say on privacy issues. The company won't be required to make significant changes to its core data-driven ads business, however.
And Zuckerberg will have to personally certify his company's compliance with its privacy programs. The FTC said that false certifications could expose him to civil or criminal penalties. But the settlement did not hold Zuckerberg personally liable for the past violations, as some had expected.
In a Facebook post Wednesday, Zuckerberg said the company will "make some major structural changes to how we build products and run this company" as a result of the settlement. "We have a responsibility to protect people's privacy. We already work hard to live up to this responsibility, but now we're going to set a completely new standard for our industry."
"There is a lot more to come on the regulatory front for Facebook," said Debra Aho Williamson, analyst with the research firm eMarketer. To pre-empt this and do things on its own terms, Williamson said, the company is "going to do whatever it can" to change its business model and change the way it gathers data.
Facebook has already signaled that this is ahead. Earlier this year, Zuckerberg unveiled a new, "privacy focused" vision for the company that centers on private messaging and encrypted communications. The details are scant. But it shows that the company is thinking years into the future even as regulators are investigating and punishing it for years-past violations.
Information for this article was contributed by Barbara Ortutay of The Associated Press; by Mike Isaac of The New York Times; and by Ben Brody of Bloomberg News.
Business on 07/25/2019