Facebook pulls a three-card monte

April 25, 2018

Facebook has been getting a lot of coverage lately — mostly about its ability to protect the troves of information that people have voluntarily supplied via the Facebook platform or on Instagram.

Earlier this month, there were the two days of Congressional testimony by CEO Mark Zuckerberg, which made for some fascinating reality TV (the New Yorker has a nice synopsis here). Those events prompted a #deletefacebook movement, although as today’s earnings seem to have proved, like much on social media, it was more talk than action. How else to explain a 49% surge in advertising revenue for the quarter?

While we didn’t do a deep dive into Facebook’s first quarter earnings, we did look at their forward-looking statements. Over the years, we’ve written a lot about how companies tweak this boiler-plate language, knowing that when earnings are released, it’s almost certain to be ignored in favor of much sexier things, like the fact that ad revenue climbed by 49% or that earnings beat expectations.

But here at footnoted, we love the boring stuff that nobody else likes to pay attention to. What we found was that Facebook added some new disclosures to their forward looking statements that touched on some of the controversies that the company has been facing lately. The biggest change was adding this language:

“risks associated with new products and changes to existing products…maintaining and enhancing our brand and reputation; our ongoing safety, security, and content review efforts…litigation and government inquiries”

When the Q comes out, we wouldn’t be surprised if there’s a new risk factor or two related to this. That’s usually how it works: first comes the forward-looking statement changes, then the risk factors.

During my presentations — I’ll be giving one at SABEW in Washington DC on Saturday and on another panel next week as part of the Financial Fraud Conference organized by Berkeley Law  — I often compare this move to a three-card-monte, because it reminds me of the guys I used to see standing on the pre-gentrified streets of New York City moving cards around quickly, trying to hustle a few bucks. Facebook’s market cap is clearly a lot larger, but the message is the same: pay attention to this and ignore that.

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