Facebook’s $5 billion fine actually made it money
When the Wall Street Journal and the Washington Post broke recent news that social media titan Facebook would be fined $5 billion by the Federal Trade Commission (FTC), readers were neatly divided in two. On the one side, there were people who perhaps don’t fully understand Facebook’s business, and were shocked by the size of the fine, seeing it as a major penalty. On the other were people that had a solid idea about how Facebook’s business really works, and what $5 billion means to the company. Those people were quick to pump more money into Facebook upon hearing the news.
Facebook’s share price continues to ascend this year
Source: Yahoo Finance
The FTC slapped Facebook with a historic fine – the largest they have ever levied on any company. But they didn’t require Facebook to change anything about its data collection and sharing policies. In other words, the penalty will have zero impact on how Facebook’s business works. For Facebook investors, this should be a huge relief. Facebook can eat a $5 billion fine – in the fourth quarter of 2018 alone, its profit came in at $6.88 billion. But a change to the underlying business that is able to capture these massive amounts would have been worrying.
As it is, the FTC actually just made Facebook richer. By confirming the extent of the threat it posed the Silicon Valley giant, the FTC (rightfully) buoyed investor sentiment, causing Facebook shares to rise by 2% on the back of the news. Given Facebook’s enormous market cap, this effectively means the company is worth $10 billion more than it was before the FTC levied its fine.
So investors should be pleased: not only has the FTC left one of their prime cash cows uninjured, but its even sent their investments up!
Disclosure
Dominion holds Facebook in its Global Trends Ecommerce Fund.
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