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Facebook investors shrug off US$3bn charge for privacy violations as underlying growth continues

While the actual figure for the FTC fine has yet to be released, Facebook said it expected its losses pertaining to the matter to be between US$3bn and US$5bn
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Over the last two years, the social media giant has been dogged by scandals around fake news, data gathering, and user privacy violations

Facebook Inc (NASDAQ:FB) has booked a US$3bn charge in its results for the first quarter in anticipation of a fine for breaching privacy rules, however investors were buoyed by a rise in underlying growth.

In its first quarter results on Wednesday, the social media giant said it had set aside the multi-billion dollar figure as the Federal Trade Commission (FTC) is expected to penalise it for breaking a consent decree on the privacy of its users.

READ: Facebook shares drop as two more senior execs depart

While the actual figure has yet to be released, Facebook said it expected its losses over the matter to be between US$3bn and US$5bn.

Despite this, investors were in a positive mood, with the company’s shares rising 8.6% to US$198.3 in pre-market trading on Thursday as by taking the fine out of the equation, the company had actually improved its year-on-year performance.

For the first quarter, Facebook reported a profit of US$2.4bn, lower than the US$5bn last year. However when the US$3bn fine charge was excluded, profits rose to US$5.4bn while revenues were also up to US$15.1bn from US$12bn.

The company also reported that its user base had grown to 2.38bn in March from 2.2bn last year, while the number of users that were active on the site daily increased to 1.56bn on average in the month compared to 1.45bn in the prior year.

The share price reaction will bring relief to the embattled social network, which has been hit by several scandals over the last two years as concerns over fake news, data gathering, and user privacy violations have all placed the company and its CEO Mark Zuckerberg under intense scrutiny.

More recently, the group has also had to contend with the departure of two senior executives, with chief product officer Chris Cox and head of WhatsApp Chris Daniels both exiting in mid-March.

UBS upgrades to ‘buy’ as ad trends point to “strong” year ahead

In a note to clients, analysts at UBS upgraded Facebook to ‘buy’ from ‘neutral’ and hiked their target price to US$240, saying advertising trends pointed to a “strong” 2019/20 fiscal year.

The bank said while 2019 would be a “year of transition”, Facebook’s management had produced “multiple quarters” of revenue growth ahead of market consensus, driven by user, engagement and revenue growth on Instagram, which Facebook bought for US$1bn in 2012.

“Instagram is now one of the Internet's large scaled digital ad platforms that can sustain growth & operating leverage (even as the platform transitions to Stories/Shopping) for years to come.”

While concerns around potential regulation and privacy would persist, UBS said the market now understood these risks.

The bank added that developments in virtual and augmented reality, messaging, eCommerce and advertising all provided upside for “platform evolution” in the future.

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