- Facebook’s stock rose around 1% after news broke that it is facing a record-breaking $1 billion penalty from the Federal Trade Commission.
- Investors are breathing a collective sigh of relief that the settlement isn’t more serious.
- Why? Facebook is absolutely vast, and makes three times the penalty in revenue every quarter.
- Critics of the company have immediately accused the FTC’s decision of being inadequate.
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The Federal Trade Commission is gearing up to hit Facebook with a staggering, record-breaking $5 billion penalty.
Wall Street is viewing this as a good thing.
And the reason why speaks volumes about the sheer scale and power of Facebook today.
Some background: For the last year, the FTC has been investigating Facebook’s various privacy snafus. The agency started with a probe into whether Cambridge Analytica’s misappropriation of 87 million users’ data amounted to a breach of the company’s 2012 consent decree with it. It later expanded the inquiry to incorporate the California tech giant’s myriad other recent privacy scandals.
This process is now drawing to a close. According to multiple reports, the commission has agreed to a settlement that would include a fine of roughly $5 billion.
That amount is extraordinarily large. It’s an order of magnitude bigger than the previous record penalty imposed by the agency — the $22.5 million fine it levied against Google in 2012. But when the news broke on Friday, Facebook stock actually rose, trading up around 1%.
This is likely because, despite the penalty’s unprecedented size, it’s still just a drop in the ocean compared to the gigantic amount of cash Facebook regularly produces. The company makes billions of dollars in profit and generates three times the total settlement amount in revenue every three months or so. It also set $3 billion aside in preparation for this back in April 2019, warning investors that it expected a penalty between $3 billion to $5 billion — meaning the cost of the settlement was already baked into the company’s share price months ago.
While Wall Street is relieved, critics are furious
In fact, Wall Street seems to be breathing a sigh of relief, as evidenced by the slight stock uptick, that the penalty wasn’t more severe.
We don’t yet know exactly what the settlement will look like, and the devil will be the details. Both Facebook and the FTC declined to comment about it when approached by Business Insider.
But it seems unlikely the deal will require the kind of fundamental changes the company’s staunchest critics have called for and that could significantly affect its bottom line. To wit, The New York Times reported that “none of the conditions in the settlement will restrict Facebook’s ability to collect and share data with third parties.”
Accordingly, the settlement has drawn criticism inside and outside the FTC. The Democratic members of the commission reportedly voted against it, pushing for harsher penalties.
Meanwhile, David Cicilline, a Democratic congressperson for Rhode Island, labeled it “a slap on the wrist” and said “the FTC just gave Facebook a Christmas present five months early.” Connecticut senator Richard Blumenthal called it a “seemingly inadequate, unconscionably delayed, and historically hollow result” and called for a congressional hearing.
Georgetown Law attorney Lindsey Barrett added: “Anyone saying that a [$5 billion] fine without other meaningful restrictions for a company that made [$22 billion] this year and has repeatedly engaged in illegal conduct at a massive scale is spinning, and spinning for a reason.”
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