Facebook blew past Wall Street profit estimates in the first quarter and set aside $3 billion to cover a settlement with US regulators, calming investors who had worried about the outcome of a months-long federal probe.
The settlement accrual, which Facebook set at $3bn but said could rise as high as $5bn, cut the company's net income in the first quarter to $2.43bn, or 85 cents per share, Reuters reported.
Excluding the charge, Facebook would have earned $1.89 a share, up from $1.69 in the year-ago quarter and easily beating analysts' average estimate of $1.63 per share, according to IBES data from Refinitiv.
Total first-quarter revenue rose 26 percent to $15.1bn from $12bn last year, again beating analysts' average estimate of $15bn.
"This is a strong report suggesting that advertisers still see value in Facebook's platform, as they did before the controversies and scandals erupted," said Haris Anwar, senior analyst at financial markets platform Investing.com.
Monthly and daily users of the main Facebookapp were both up 8 per cent compared to last year, to 2.4 billion and 1.6 billion, respectively, in line with forecasts.
Total expenses in the first quarter were $11.8bn, including the settlement accrual, up 80 per cent compared with a year ago as the company hired content moderators and invested in new security controls to make its social networks safer.
Executives said in a conference call with investors that they expected expenses to grow 47 to 55 per cent this year, updating their earlier forecast of an increase of 40 to 50 per cent.
The first-quarter operating margin fell to 22 per cent from 46 per cent a year ago, but would have been a comfortable 42 per cent without the one-time expense.
The US Federal Trade Commission has been investigating revelations that Facebookinappropriately shared information belonging to 87 million of its users with the now-defunct British political consulting firm Cambridge Analytica. The inquiry has focused on whether the sharing of data and other disputes violated a 2011 agreement with the FTC to safeguard user privacy.
A settlement of between $3bn and $5bon would be the largest civil penalty ever paid to the agency, said David Vladeck, a former FTC official who is now a professor at Georgetown Law School.
"Everyone expected there would be a substantial civil penalty in this case," said Mr Vladeck. "There's no question that Facebook is going to have to settle this matter. Investors want this behind them."
Even once the FTC probe is resolved, other challenges remain. The number of Facebookusers barely budged in the United States, Canada and Europe, indicating saturation in the company's most lucrative markets.
Its largest and fastest-growing user base is now in Asia, where monthly active users jumped 12.4 per cent from last year. The region represents nearly half of all Facebook users, but brought in less than a fifth of the company's revenue.
That shift in geography, along with slow advertiser adoption of new services like Stories, resulted in a 4 per cent decline in the average price per ad in the first quarter.
Facebook plans to shift focus toward private communications, integrating its messaging services across Facebook, Instagram and WhatsApp, but has not yet articulated how it will adapt its advertising-driven business model.
Facebook also faces the prospect of action by lawmakers, with some calling for federal privacy regulation and anti-trust action to break up big tech companies.
Representative David Cicilline, who chairs the US House of Representatives Judiciary Committee's subcommittee on antitrust issues, said on Twitter that Facebook was "a repeat offender" and called for an FTC response "strong enough to prevent future violations."
"A fine in the low billions of dollars would amount to a slap on the wrist for Facebook. Tonight, we learned that's how Wall Street sees it too - as a slap on the wrist. If the FTC won't act, Congress has to," he said.
However, the social media giant remians a powerful draw. "Advertisers continue to be stuck on Facebook, despite its many challenges," EMarketer analyst Debra Aho Williamson wrote in a note following the report. "What they care most about is its vast user base and its targeting capabilities."
Still, Aho Williamson said advertisers should pay attention to further developments in the company’s talks with the FTC, especially the potential for any agreement to include changes to the way the company does business, according to Bloomberg.
"This is a significant development, and any settlement with the FTC may impact the ways advertisers can use the platform in the future," she wrote.
