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Facebook Scandals Could Hit Hardest Yet with First Profits Fall Since 2015

Last Updated September 23, 2020 12:40 PM
David Hundeyin
Last Updated September 23, 2020 12:40 PM

By CCN.com: Facebook’s annus horribilis looks like it will continue unabated, with the social media giant likely to experience its first quarterly drop in earnings since 2015. Despite recording a $3bn turnover increase, analysts expect the company to report a profit reduction from $5 billion in Q1 2018 to $4.7 billion, when it announces its Q1 2019 results later this week.

At a time when the corporation’s activities are increasingly facing scrutiny by regulators around the world due to myriad privacy breaches, legal and ethical controversies, fake news scandals and the Cambridge Analytica saga, the expected reduced profit announcement would only serve to underscore the severity of the situation currently facing the world’s largest social network.

Facebook in Crisis? Not Quite

While the idea of Facebook making less money makes for a good headline, it is not by any means the full story. As mentioned earlier, despite the expected profit reduction, Facebook’s turnover has actually gone up. Apart from its eponymous platform, it also controls Instagram and WhatsApp, which means that it will take more than a few scandals and legal battles to seriously shake this behemoth.

Indeed, Facebook’s stock price chart shows very clearly that regardless of whatever problems the company is facing, investors still have their money solidly behind the company.

Rumors of Facebook’s death are exaggerated, as its YTD stock price chart shows | Source: Trading View

That notwithstanding, it is still important to note that this is its first quarterly profit reduction in almost 4 years. Whether or not investors care about Facebook’s plethora of controversies, these are certainly real problems for Mark Zuckerberg and his team, who are under real pressure to deliver wholesale change and clean up the public face of a company that was recently described as “morally bankrupt pathological liars” by New Zealand’s privacy commissioner.

Fixing Up Costs Money

Since getting dragged into the political arena for its role in facilitating attempts to illegally influence the Brexit referendum and the U.S. presidential election, Facebook has also come under the spotlight for potentially terror by turning a blind eye to right wing radicalization and hosting a horrifying livestream of a terrorist shooting 50 people dead in Christchurch, New Zealand.

The company has also faced intense criticism for its privacy and data storage lapses, including storing the passwords of hundreds of millions of Instagram users in unencrypted plain text format that could potentially be accessed by hackers and sold on the dark web.

To fix the fallout from this mess, Facebook is setting aside an undisclosed amount of money to sort out its data privacy issues and deal once and for all with the problem of fake news and illegal content. The company has hired thousands of extra content moderators and it is also exploring the use of Artificial Intelligence to recognize and restrict fake news and hate speech on its platforms.

The company is also significantly beefing up the amount of money budgeted for Zuckerberg’s security from about $10 million to $22.6 million. As a net result of all this expenditure, analysts predict that the company’s 2019 annual profit figure will be somewhere just below the 2018 figure of $28.7 billion.