It’s always good business practice to have an emergency contingency fund. You never know when a lawsuit or government fine might blindside you. For Facebook, their current rainy day fund is in the billions (with a b) according to Hannah Murphy and Kadhim Shubber in the Financial Times.
“Facebook has set aside $3bn to cover a potential fine by the US Federal Trade Commission for privacy violations, in what would be the largest civil penalty imposed by the regulator,” the article explains. “The world’s largest social network took the charge in its first-quarter results on Wednesday, but it also warned that resolving the investigation, launched by the FTC in the wake of the Cambridge Analytica scandal, could cost even more.”
The company estimates the fine could reach $5 billion. Wall Street didn’t seem to mind though, as shares rose after the news was shared in an earnings report.
“… investors shrugged off the news after Facebook said that without the charge, its earnings per share would have been $1.89, beating forecasts,” the article continues. “The company’s shares surged as much as 10 percent in after-hours trading, adding more than $50bn to the company’s market capitalization. Revenues, most of which come from advertising, stood at $15.1bn in the quarter, a 26 percent rise compared with the same period last year and just above the consensus estimate of a 25 percent year-on-year increase.”
The fine comes as the FTC finishes its investigation into a possible settlement violation back in 2011 that required the company “to be clear with users about their data privacy and to get explicit permission if changes to privacy settings were made. That initial settlement was agreed after the FTC found that Facebook had made user information public that it promised would be kept private.”
We all know how well that went.
And while Facebook seems rather blasé about the massive financial penalty, the fine is sending a chilling message to the industry, according to David Vladeck, who headed the FTC’s consumer protection division when the settlement was made eight years ago.
“When you enter into a consent decree with the FTC, you’re going to want to take it more seriously than Facebook took it,” Vladeck was quoted as saying.
For brands that advertise on the platform, it bears watching, as this may impact the overall business model for the ad program. Or, maybe not. If they can afford to set aside billions in fines as a cost of doing business and investors carry on as usual, they might not have to change a thing. Meanwhile, you can feel good knowing the money you pay them is going to such a worthy cause. You know, making the world a better place, like Zuckerman said he would just last year.
Per usual, Facebook has no comment to the Financial Times piece.