Facebook's long list of scandals has only grown longer this year. Those troubles finally hit the social network where it matters: earnings.
The social network said Wednesday it's set aside $3 billion to cover possible expenses for a possible fine related to an ongoing investigation by the US Federal Trade Commission. The yet-unannounced FTC fine, which Facebook said could be as high as $5 billion, would be the largest ever by the agency against a US tech company.
The FTC is looking into Facebook's privacy practices and determining if the company violated a legal agreement to keep user data private. The consumer watchdog began investigating Facebook after revelations surfaced last year that UK consultancy Cambridge Analytica harvested the data of as many as 87 million users without their permission.
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The legal costs, which Facebook revealed as part of its first-quarter earnings, took a bite out of its performance. Facebook earned 85 cents per share, a little more than half of the $1.61 per share analysts surveyed by Thomson Reuters had forecast.
Still, Facebook's scandals didn't scare away advertisers or users. The company posted a better-than-expected $15.08 billion in sales in the first quarter and reported the number of users who logged on every month increased by 8%, to 2.38 billion. The company said that performance would have generated $1.89 in earnings per share if it hadn't had to set aside money for the fine.
Facebook shares jumped more than 5% to $192.60 per share in after-hours trading.
Debra Aho Williamson, an analyst at eMarketer, said Facebook remained the place to reach consumers despite its problems.
"Advertisers continue to be stuck on Facebook, despite its many challenges," eMarketer analyst Debra Aho Williamson said in a statement. "What they care most about is its vast user base and its targeting capabilities, and both are continuing to provide strong performance for them."
During a conference call, Facebook executives declined to share details about the FTC investigation because it was ongoing. If Facebook's estimates are correct, the FTC fine would be larger than the record-setting $22.5 million the agency imposed on Google in 2012.
Facebook's earnings come less than a week before F8, its annual developer conference. The two-day event kicks off on April 30 in San Jose, and Facebook CEO and co-founder Mark Zuckerberg is scheduled to delivering the keynote.
Privacy and Safety
Facebook's privacy woes aren't the only troubles at the world's largest social network.
Critics assailed Facebook after it failed to control video of a gunman who livestreamed a terrorist attack at a mosque in New Zealand. Content moderators have complained about working conditions at Facebook and the toll the job takes on their mental health.
The social network has been trying to prove it's doing more to combat these issues with the help of technology.
Zuckerberg said during the conference call that the company's only hope to flag offensive posts in real time is building a system powered by artificial intelligence so that it doesn't have to rely on user reports and moderators.
About 99 percent of terrorist propaganda that Facebook takes down is flagged by the company's AI systems. The social network is trying to be more proactive about identifying other offensive content such as hate speech, violence and nudity.
"The reactive model of waiting for people to flag them guarantees that by the time we get to look at an issue someone has already seen that content, which is not the state we want to be in," Zuckerberg said during the call.
The company currently releases transparency reports twice a year about the material it pulls down. Zuckerberg said he wanted to release that information every quarter, though he didn't say when the company might begin reporting the data that way.
Facebook also said its Stories feature, a Snapchat-like addition to the social network that allows users to post videos and posts that vanish in 24 hours, was being used by 500 million people every day.
Originally published April 24, 1:15 p.m. PT
Updates, 1:38 p.m.: Adds more details; 1:45 p.m.: Includes analyst comment.