Updated:

Beating back weeks of negative publicity all the way into today, Facebook Inc. reported better-than-expected second quarter results on strong sales of mobile ads on its core app and Instagram. 

The social networking giant has been buffeted by a seemingly endless series of bad news, challenges and gaffes — most recently the imposition early today of a $5 billion fine and ongoing oversight of its operations by the Federal Trade Commission for various privacy violations.

So far, all that appears to have had little impact on Facebook — its stock hit its highest point in a year on July 12 after reports of the size of fine emerged — and today was no exception. Facebook’s shares rose 1.1% in regular trading today, to $204.66 a share.

But Chief Financial Officer David Wehner warned on a conference call with analysts that revenue growth could slow in the fourth quarter and into 2020 as a result of several factors. They include regulatory pressures on ad targeting from the European Union’s General Data Protection Regulation and others coming, as well as a heavier privacy focus by both Facebook and mobile operating system providers such as Google LLC and Apple Inc.

In addition, the company disclosed today that the FTC has opened a formal antitrust investigation of the company. That’s on top of the Justice Department’s announcement today of an antitrust probe of several major tech companies, including Facebook.

Wehner’s comment on revenue growth chilled investors for a bit. Although shares initially rose as much as 4% in after-hours trading, they slid into negative territory after Wehner’s warning before recovering to less than a one-point rise. It seems that if investors weren’t completely happy, they didn’t see much cause for concern either. Update: Shares were falling 2.7% in midday trading Thursday.

“While management talked about ongoing deceleration into 2020, we think this is largely factored into 2020 estimates and are hopeful we are seeing a peak investment year with chances of margin expansion into 2020,” Pivotal Research analyst Michael Levine wrote in a note to clients.

Facebook had already signaled three months ago that it could face as much as a $5 billion fine, and it took a $3 billion charge for it in the first quarter, adding an additional $2 billion charge in the second quarter.

Excluding that charge as well as a $1 billion charge for potential tax liabilities from a dispute about stock-based compensation accounting, the company reported a profit of $1.99 per share. That was up 14% from $1.74 a share a year ago. Sales — almost all of it from mobile advertising — rose 28%, to $16.9 billion. Analysts on average had expected a profit of $1.87 a share on revenue of $16.5 billion.

Perhaps even more important for Facebook’s momentum, the number of monthly active users rose 8% from last year, to 2.41 billion. That’s a key metric analysts use to determine the future health of Facebook’s business. According to FactSet, analysts had expected 2.21 billion monthly active users, so Facebook mildly beat that forecast. The company added that 2.7 billion people use one of its services, which include Instagram, WhatsApp and Messenger, every month.

In a prepared statement, Chief Executive Mark Zuckerberg (pictured) cited the new FTC-mandated privacy protections only in passing, focusing more on the company’s growth and plans to deliver new services. But in earlier remarks on his Facebook page, Zuckerberg acknowledged a “responsibility to protect people’s privacy.” He also said doing so “will take hundreds of engineers and more than a thousand people across our company to do this important work. And we expect it will take longer to build new products following this process going forward.”

Facebook’s regulatory challenges likely are far from over. Facebook as well as fellow tech giants Alphabet Inc.’s Google LLC, Amazon.com Inc. and Apple Inc. now face a potentially sweeping antitrust probe by the Justice Department. Presidential candidates Elizabeth Warren and Bernie Sanders have also called for Facebook to be broken up. So the company’s troubles seem only more likely to pile up in coming months and years.

Still, all that doesn’t seem to matter much to the people who buy either Facebook’s ads or its stock. “This company has repeatedly shown that it can grow both its ad revenue and its user base, even in the face of enormous challenges,” eMarketer Principal Analyst Debra Aho Williamson said in an email. “Today’s earnings release demonstrates that it still has that power.’

Williamson added that she expects Facebook’s worldwide ad revenue to rise 22.5% this year, higher than digital advertising overall, pegged at a 17.6% rise.

The fact is that Google and Facebook and their various properties remain the most attractive place for marketers to reach consumers. Barring even further limitations on its business, Facebook seems likely to maintain its edge by virtue of having the most precise information on its more than 2 billion users.

“We’ve seen a growing number of brands choosing to increase their ad spend on Instagram, so it is no surprise that Facebook results are strong,” Yuval Ben-Itzhak, chief executive of social media marketing platform Socialbakers, told SiliconANGLE. “Marketers find the platform valuable and it shows in the rising cost of engagement. Facebook is still way ahead of competitors and that’s unlikely to change any time soon.”

Nonetheless, Williamson said, marketers are growing increasingly concerned about whether those advantages will hold in the new era of privacy. “Today’s FTC settlement doesn’t appear to have direct impact on Facebook’s business, but there is no reason to think that other regulatory or governmental investigations won’t have an impact in the future,” she said.

Facebook continues to spend heavily on expanding its businesses, as costs and expenses jumped 39%, to $10.3 billion not including the FTC charge.

But capital spending rose only 9%, to $3.8 billion, though that figure can be volatile from quarter to quarter depending on data center and other investments. As a result of lower capital spending growth, free cash flow rose 70%, to $4.84B. In turn, its cash balance rose by more than $3 billion, to $48.6 billion.

Beyond advertising

Facebook remains as aggressive as ever moving into new markets, most recently proposing a new cryptocurrency called Libra — a move that also has prompted a lot of pushback from lawmakers. Zuckerberg said on an analyst conference call that it could be among the most important new service Facebook provides in the next few years.

“Thanks to Libra and related developments, we believe Facebook has the long-term potential to become the largest e-commerce platform on the planet, even in regions where credit cards and e-banking are limited,” said Socialbakers’ Ben-Itzhak.

Zuckerberg also talked up the company’s work on augmented and virtual reality, in particular the shipment this past quarter of the Oculus Quest, which is a self-contained headset. “We’re selling them as fast as we can make them,” he said.

Photo: Robert Hof/SiliconANGLE