Facebook's privacy scandal appears to have little effect on its bottom Line

Facebook CEO Mark Zuckerberg | Photo: Reuters
Despite it all, the Facebook juggernaut marches on.

The social network is undergoing its worst crisis in its 14-year history as it faces a torrent of criticism about its privacy practices and the way it handles user data.

But on Wednesday, Facebook showed that — as with past scandals — the controversy is so far doing little to hurt its bottom line.

The Silicon Valley company reported a 63 increase in profit and a 49 percent jump in revenue for the first quarter, driven by continued growth in its mobile advertising business. Mobile advertising now represents more than 90 percent of Facebook’s advertising revenue.

The company also said that it added 70 million monthly active users last quarter, bringing it to 2.2 billion monthly active users as of March.

The results sent Facebook’s shares up more than 7 percent in aftermarket trading on Wednesday, reflecting Wall Street’s willingness to shrug off the company’s privacy issues as long as the money keeps flowing in.

“All the data privacy issues, the congressional hearings, none of that will get as much scrutiny from investors as the bottom line,” said Brian Wieser, an analyst at Pivotal Research. “All investors are looking for is a change in user metrics.”

The earnings report followed weeks of tumult for Facebook, after a controversy erupted last month when The New York Times and other news outlets reported that millions of Facebook users’ private information had been harvested by Cambridge Analytica, a political firm with ties to the Trump campaign. The revelations drew alarm from regulators and lawmakers and Zuckerberg appeared at two congressional hearings in Washington this month to answer questions about Facebook’s role and responsibilities.

On a conference call, Zuckerberg nodded at the controversy, saying that the company hopes to “keep moving forward” to make its products “good for people and good for society.” But he had little reason to apologise to investors. Facebook’s user base and advertising revenue are still growing all over the world, with some of the fastest growth in the Asia-Pacific region.

The company’s growth does not appear to have been stalled by privacy concerns, although the revelations about Cambridge Analytica and a #DeleteFacebook campaign that followed from some irate users did not occur until late in the quarter, and could be reflected in future earnings.

Facebook faces other challenges. Next month, strict new European privacy regulations are set to take effect, which require tech companies to seek people’s consent before accessing their data. Facebook said that the rules, known as the General Data Protection Regulation, could lead to a decline in use in Europe.

“The first step for Facebook was to show that the problem is contained,” said Dan Ives, chief strategy officer and head of technology research for GBH Insights, a marketing research firm.

“A bigger worry for investors is what’s around the corner,” Ives said, noting that Facebook will need to prove that it is able to “navigate a more treacherous regulatory environment.”

In January, Facebook tried to soothe investors after announcing changes to its News Feed that demoted news in favour of updates shared by users’ friends and family. The company said then that it had experienced its first decline in the number of people who use Facebook on a daily basis in the United States and Canada; it also reported a dip in the amount of time spent on the platform.

©2018 The New York Times News Service

Business Standard is now on Telegram.
For insightful reports and views on business, markets, politics and other issues, subscribe to our official Telegram channel