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Facebook expects to pay up to $5 billion over Cambridge Analytica scandal

Facebook could be fined up to $5 billion
Facebook could be fined up to $5 billion by FTC over data-privacy scandal 07:55

Facebook's costs jumped by $3 billion in the first three months of the year as the company deals with an ongoing Federal Trade Commission investigation into the social network's privacy practices.

Facebook said on Wednesday that its operating costs rose to $11.7 billion in the three months ending March 31, up 80 percent from the year-earlier period. The company set aside $3 billion to deal with the issue, it said in its quarterly earnings release, noting that the final loss from any government fines could be as much as $5 billion.

The company made a profit of $22 billion last year on $56 billion in total revenue, or a profit margin of 45%. Still, the potential cost of an FTC penalty grabbed the attention of Facebook analysts.

"This is a significant development, and any settlement with the FTC may impact the ways advertisers can use the platform in the future," eMarketer Principal Analyst Debra Aho Williamson said in a note.

The FTC started looking into Facebook last March, shortly after news reports that the social network allowed Cambridge Analytica to collect data from millions of users without their knowledge. Seven years prior, Facebook reached a settlement with the agency after it was accused of making data public that it had promised would be private. As part of that settlement, Facebook agreed to ask for users' permission before sharing their data more broadly than their privacy settings specified.

Facebook's monthly user base grew 8 percent, to 2.3 billion, from the year before, the company reported Wednesday. But its North America users stayed nearly flat, at 243 million.

Despite the signs of slowing audience growth and the long-term specter of more government regulations eating into Facebook's profits, Wall Street remains bullish on its growth prospects: Facebook shares have risen 39 percent since the beginning of the year, more than double the increase of the Standard & Poor's 500 index.

The company plans to extend its dominance in the digital space with a new private messaging system, where communication would be encrypted and temporary, CEO Mark Zuckerberg told investors on a conference call following the release of the latest quarter's results. "This is going to be a central focus for the company for the next five years or longer," he said. Along with this shift, the company plans to build out the ability of businesses to sell directly to users on the platform.

"In terms of advertising and commerce, it's a spectrum," Zuckerberg said, citing the popularity of ads on Facebook's Instagram. "The private network will lend itself to transactions."

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