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Facebook beats profit estimates, sets aside $3 billion for privacy fine

(Reuters) – Facebook Inc on Wednesday blew away Wall Street profit estimates in the first quarter as it kept a lid on the cost of making social networks safer, and set aside $3 billion to cover a settlement with U.S. regulators, calming investors who had worried about the outcome of a month-long federal probe.

FILE PHOTO: A Facebook panel is seen during the Cannes Lions International Festival of Creativity in Cannes, France, June 20, 2018. REUTERS/Eric Gaillard

Shares of the world’s largest online social network jumped more than 10 percent after an hour.

The US Federal Trade Commission is investigating revelations that Facebook inappropriately shared information of 87 million of the users with the now-defunct British political consulting firm Cambridge Analytica.

The probe has focused on the question of whether the sharing of data and other disputes, violated a 2011 agreement with the FTC to ensure privacy of the user. Facebook set aside $3 billion to cover the expected costs in connection with the settlement, but said that the cost could rise to $ 5 billion.

If the settlement is in that range, it would be the largest civil penalty paid to the agency, said David Vladeck, a former FTC official now at Georgetown Law School.

“Everyone expected that there would be a significant civil penalty in this case,” said Vladeck. “There is no doubt that Facebook will have to do with this case. Investors want this behind them.”

The build-up to cut the net income in the first quarter to $2.43 billion, or $0.85 per share.

Excluding the $3 billion set aside, Facebook would have earned $1.89 a share, from $1.69 the year before, and easily beating analysts ‘ average estimate of $1.63 per share, according to IBES data of Refinitiv.

Total first quarter revenue increased 26 percent to $14.9 billion from $12.0 billion last year, while analysts average estimate of $15.0 billion.

The shares of Facebook surged 10 percent to $200.50 in after-hours trading, demonstrating the company’s resilience despite a series of scandals about wrong shared data of the user, and the propaganda who is the victim of political control over the whole world.

The company’s shares lost a third of their value last year, after executives first warned about the costs associated with the drive to improve safety and slow the growth in turnover and operating margin.

The total expenses in the first quarter was $11.8 billion, up 80 percent compared with a year ago. The operating margin declined to 22 percent from 46 percent a year ago, but 42 percent without the one-off costs.

“This is a strong report suggests that advertisers still see the value in the Facebook platform, as they did before the controversies and scandals broke out,” said Haris Anwar, a senior analyst with the financial markets platform Investing.com.

Executives have predicted that the cost will grow 40 to 50 percent in 2019, but say that they expect the downward trend to taper off after this year the income from new ways to push ads, and transactions to facilitate compensation of the security expenditure.

Monthly and daily users of the main Facebook app in comparison with the previous quarter, both an increase of 8 percent to 2.38 billion and 1.56 billion, respectively.

Estimates were for 2.4 billion monthly users and 1.6 billion daily users, according to Refinitiv averages.

Reporting by Akanksha Rana, Bengaluru and Katie Paul in San Francisco; additional reporting by Diane Bartz in Washington; editing by Patrick Graham and Bill Rigby

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