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Facebook to warn of higher costs as Cambridge Analytica scandal takes bite out of profits

James Titcomb
Mark Zuckerberg is due to warn of higher costs - AFP

Facebook is set to warn of a hit to profits as it feels the first financial effects of the Cambridge Analytica scandal.

Investors are braced for the social network to warn of an increase in spending on Wednesday, as it attempts to get a grip on the scandals enveloping the company.

Last month, it emerged that millions of Facebook users had their personal data collected without their consent and passed to the British election consultants Cambridge Analytica. 

Facebook has since revealed that 87m people may have been affected, and promised a series of reforms to regain trust after a heavy drop in its share price.

The scandal only emerged in the second half of March, so any fallout is unlikely to show in the closely-watched user numbers when Facebook reports results for the first quarter of the year. 

How many people use Facebook

But Mark Zuckerberg is now expected to forecast a significant rise in costs after he promised to increase in the number of people assigned to police the website and bolster security.

Last month the Facebook chief said an audit of thousands of third party apps that had access to users’ information would cost the company “many millions”. 

Analysts expect that Facebook’s chief executive will predict operating expenses increasing by up to 60pc, the high-end of previous forecasts. While profits are still due to rise, extra costs will ultimately hinder Facebook’s astonishing profit growth after years of enormous leaps.

In November, Facebook said it expects expenses to rise by between 45pc and 60pc this year. The increase was brushed off by investors because the company has previously exaggerated how much it will spend on new staff, but the latest crisis has led to an unprecedented commitment to solving Facebook’s problems.

Analysts at Deutsche Bank said last week: “We (and most investors) do not expect Facebook to reduce its opex guidance range [of 45-60pc] and maybe even talk towards the mid or higher end of the range.”

Mark Mahaney, of Royal Bank of Canada, said: “We wouldn’t be surprised to see the company guide to the high end of that range with a greater focus on platform security measures.”

At the end of March, Facebook said it would stop using information purchased from data brokers to target adverts, something analysts expect will dent revenue.

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Last week Deutsche Bank trimmed forecasts for revenues and increased spending expectations, saying full-year profits would be 3pc lower than previously forecast at $25bn.

Google’s parent company, which reports first-quarter results on Monday, is expected to post a 25pc increase in profits as revenues from its YouTube video service and cloud computing services continue to soar. 

The company is under pressure to reveal how much money YouTube makes, although analysts do not expect it to do so this week.

Amazon is expected to brush off recent criticism from Donald Trump with a 39pc increase in quarterly revenues to $49.9bn. The internet retail giant revealed last week that it had 100m subscribers to its Prime service.