Facebook: Privacy scandals take toll on profits

Facebook has recorded its first annual fall in profits in at least five years, as its efforts to respond to privacy and content concerns took a toll on the firm's bottom line.

The tech giant, which owns Instagram and WhatsApp, said profits sank 16% in 2019 to $18.4bn (£14.1bn).

The fall came despite the continued health of its advertising business, which saw revenue rise 27% last year.

Shares in the firm dropped more than 6% in after-hours trade.

Facebook startled investors in 2018, when it warned that its efforts to beef up privacy protections and content moderation on its platform would hit profit.

The tech giant has faced criticism over its handling of fake news during 2016 elections, as well as the improper sharing of user data with Cambridge Analytica. More recently, its decision not to police political adverts on its site for false content has come under fire.

In July, US regulators announced a record $5bn fine against Facebook to settle privacy concerns.

On Wednesday, the firm also said it had agreed to pay $550m to settle an Illinois lawsuit over its use of photos for its facial recognition technology.

Facebook chief Mark Zuckerberg said that he expects the firm will continue to find itself in the spotlight, as it defends its support of targeted advertising and encryption.

"My goal for this next decade isn't to be liked but to be understood," he said. "In order to be trusted, people need to know what you stand for."

Shares plummeted following its 2018 forecast, but they had rebounded last year, as user growth and advertising revenues remained strong, despite ongoing investigations.

On Wednesday, Facebook said an average of 2.26 billion people were active on its family of platforms each day in December, up 11% from a year earlier. Facebook alone counted an average of 1.7 billion active users each day during the month, up 9% - ahead of expectations.

"Facebook can't avoid change though," said Sophie Lund-Yates, equity analyst at Hargreaves Lansdown. "The Cambridge Analytica scandal intensified regulatory scrutiny, and tightening data security as well as fighting fake news is an ongoing - and expensive - challenge."

Facebook reported more than $70bn in revenue for 2019, up from $55.8bn the previous year. However, expenses rose faster, increasing 51% to $46.7bn, driven by legal costs.

Facebook warned that further costs were yet to come, as growth slows due in part to new privacy regulations.

"While we have experienced some modest impact from these headwinds to date, the majority of the impact lies ahead of us," chief financial officer Dave Wehner said.