Facebook (NASDAQ:FB) faced down regulators Oct. 30 with a stellar earnings report that sent the stock soaring. Earnings of $6.1 billion, or $2.12 per share, on revenue of $17.4 billion shocked critics but emphasized a key point for investors. Facebook is the world’s dominant messaging company.
There are now 1.6 billion daily active users, up 9% year-over-year. Mobile advertising represented 94% of revenue. Facebook was able to put $3.6 billion into capital spending without even breaking a financial sweat. It ended the quarter with over $52 billion in marketable cash and securities.
Facebook shares rose 4% in overnight trading and are now up nearly 48% since the start of the year. The company’s market capitalization is now $552 billion. It is the fifth most powerful company in the whole world.
Facebook’s Troubles Are Global
Going into earnings you would think Facebook was about to go bankrupt.
That’s because Facebook’s political scandals are expanding. It’s not just a question of whether journalists tied to President Donald Trump are using the firm’s news tab. It’s not just advertising.
The problem is global. The problem is inherent in the network.
Facebook also shut down three Russian “troll factories” trying to influence politics in eight African countries. The owner of these networks, Yevgeniy Prigozhin — who some call “Putin’s chef” for his role in catering banquets for the Russian president — is said to have used similar tactics in the 2016 U.S. election.
Cognizant Technology Solutions (NASDAQ:CTSH) said it will quit working for Facebook, after investigators found content moderators in Phoenix endured trauma as a result of the job, and those in Tampa were mistreated by managers.
Is the World Powerless?
India offers a microcosm of the problem. Regional advertising revenue growth in the Asia-Pacific region is up 35% per year, and Facebook hopes to offer a payment system called WhatsApp Pay in India very soon.
But a United Nations report blamed Facebook for helping spur genocide in Myanmar. The human rights group Avaaz called Facebook a “megaphone for hate” in India’s Assam province, where posts are attacking Bengali Muslims.
The stories, taken together, raise the question of whether Facebook or anyone else is capable of controlling content on any of the company’s services.
Facebook would fight any antitrust effort, and it is unclear how regulators could even proceed. If Facebook were defined as a “common carrier,” like AT&T (NYSE:T), content regulation of any type would be prohibited. If it were defined as a media company like CBS (NYSE:CBS), and held responsible for anything posted on its sites, the costs of moderation could destroy the service. But any U.S. or European regulation would be, in effect, a local ordinance, as the Indian and African examples demonstrate.
The Bottom Line on FB Stock
From the early days of the U.S. Constitution, some said there was a snake hiding under the table. The snake was slavery, and the Founding Fathers knew it could destroy the country. In the U.S. Civil War, it nearly did.
There was also a snake hiding under the creation of the internet 50 years ago. Even while the internet promises to bring everyone on the globe into the same conversation, it has no control over the human heart.
No government, no regulator and no private company can prevent hate. It can only try to contain it. Facebook argues that the economic benefits of global speech outweigh the political risks of rising conflict.
Facebook is in uncharted territory. But it’s clear from the third-quarter results that this is territory it can afford to explore.
Dana Blankenhorn is a financial and technology journalist. He is the author of the historical mystery romance The Reluctant Detective Travels in Time, available now at the Amazon Kindle store. Write him at email@example.com or follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this story.