Facebook has reportedly begun warning investors that “intense media coverage” of the company’s latest user data scandal could lead to lower user numbers and overall revenue.
Facebook’s positive first-quarter earnings boosted confidence in the company following their latest user data scandal, reports Business Insider. Facebook revealed nearly a 50 percent rise in quarterly revenues to $11.9 billion, with monthly active users jumping by 13 percent year-over-year to 2.2 billion. This resulted in the stock price soaring by 10 percent to approximately $175.85 this week. However, despite these impressive numbers, Facebook has warned that negative media coverage of its recent user data scandal that allegedly saw the personal data of 87 million users improperly accessed may result in a decline in revenue for the company.
The user data scandal took place in March, meaning that Facebook’s first-quarter earnings were relatively unaffected by the issue. Now with the company having to contend with increased scrutiny and new European data laws in the form of the GDPR, investors have been warned that user growth could decline as could company revenue. In a recent financial filing, Facebook warned that “intense media coverage” could lead to a decrease in user numbers in the second quarter.
The filing reads:
Beginning in March 2018, we were the subject of intense media coverage involving the misuse of certain data by a developer that shared such data with third parties in violation of our terms and policies.
Such negative publicity could have an adverse effect on the size, engagement, and loyalty of our user base and result in decreased revenue, which could adversely affect our business and financial results.
Facebook admitted that the data scandal had “eroded confidence” in the company’s brands and stated: “If we fail to successfully promote and maintain our brands or if we incur excessive expenses in this effort, our business and financial results may be adversely affected.”
CFO David Wehner discussed the new GDPR data laws which are set to take effect on May 25 during a recent earnings call. Wehner stated:
While we do not anticipate these changes will significantly impact advertising revenue, there is certainly the potential for some impact and we will be monitoring this closely. We believe that European MAU and DAU may be flat to slightly down sequentially in Q2 as a result of the GDPR roll out
Analysts from the firm Goldman Sachs continue to remain confident in the company, stating:
Although management once again highlighted its commitment to platform safety for its users and while the CFO continued to highlight decelerating growth as we progress through 2018 (on a constant currency basis) given its tough comps, we thought the call went better than expected.