Last month, the world was shocked at how Cambridge Analytica harvested private data from the Facebook (NASDAQ: FB) profiles of millions of Americans without their permission. Following this massive data leak, Facebook CEO Mark Zuckerberg appeared before the Senate’s Commerce and Judiciary committees in early April to apologize and defend the company.

The Data Scandals Rocking Facebook

Using a personality quiz, a Russian-American Professor Aleksandr Kogan collected the personal information of 300,000 Facebook users, and then collected data on over 70 million of their friends. He then sold this data to Cambridge Analytica for $800,000. Cambridge Analytica then used this data to create a psychological warfare tool to influence United States elections.

Facebook is now working with governments in the US, the UK, and around the world to do a full audit of what they’ve done and to make sure they get rid of any data they may still have. Mark told the senate that it is investigating every single app that had access to a large amount of information and has promised that if it finds any improper use of data, it will ban them from Facebook and tell everyone affected. Going forward, it will make sure that developers can’t access as much information.

Since the 2016 elections, Facebook has deployed new AI tools that do a better job of identifying fake accounts that may be trying to interfere in elections or spread misinformation. It has already removed tens of thousands of fake accounts ahead of the elections in France, Germany, and Alabama last year. It is also rolling out ads transparency tools that bring a higher standard of transparency than TV or print ads. It plans to implement this in time for the 2018 US midterms as well as upcoming elections in Mexico, Brazil, India, and Pakistan.

Facebook’s Financials

Facebook’s Q1 revenues grew 49% over the year to $11.97 billion, ahead of the market’s estimates of $11.4 billion. Net income was $4.98 billion or $1.69 per share, above the Street forecast of $1.35.

By segment, advertising revenues grew 50% over the year to $11.8 billion with average revenue per user at $5.53, ahead of the market’s forecast of $5.35. Mobile advertising was up 60% to $10.7 billion and accounted for 91% of its ad revenues compared with 85% a year ago. Revenues from payments and other fees fell 2% to $171 million.

Operating metrics were in line with the market expectations. Facebook’s monthly active users were up 13% to 2.2 billion. After the slight decline in daily active users last quarter, things are looking up again. Daily active users were up 13% to 1.45 billion.

During the quarter, capital expenditures were $2.8 billion, driven by investments in data centers, servers, network infrastructure, and office facilities. Headcount increased 48% to 27,742.

The company generated $5.0 billion in free cash flow and ended the quarter with approximately $44 billion in cash and investments. It bought back approximately $1.9 billion of its Class A common stock. Repurchase of up to an additional $9 billion of stock has been authorized.

Facebook now expects 2018 total expenses will grow 50-60% to $15 billion, compared to its prior range of 45-60% due to the significant investments in areas like safety and security, content acquisition, and long-term innovation.

Facebook’s New Focus

Facebook CEO Mark Zuckerberg said that the company is shifting its focus away from passive consumption toward more meaningful interactions. It is rolling out more interactive video features like Watch Party that lets people watch a video together with their friends and interact around it.

Groups is another focus area and 200 million people are now members of meaningful groups on Facebook. It has a target of helping 1 billion people become part of meaningful groups.

During the quarter, Facebook released WhatsApp business, which lets small businesses create a presence and offers better tools for messaging. Over 3 million people are actively using the new service.

Following the scandals last month, Facebooks stock slumped to $157.20. However, its strong results pushed up the stock and it is now trading at $174.16 with a market cap of $505.9 billion. It hit a 52-week low of $144.42 in April last year and a 52-week high of $195.32 in January this year.

Facebook has a huge challenge ahead of it. The scandals haven’t affected its results yet. There may be a sobering effect on its growth in the future, but there is no escaping the fact that it has drastically changed the way people connect and has become a habit tough to get rid of, not to mention the fact that meaningful group interactions like bringing alumni of schools together are immensely valuable.

The real question that looms over Facebook is to what extent its business model will get impacted by data privacy regulations whereby they may no longer be able to use such granular levels of data to power their targeted advertising capabilities. However, such regulation is a long way away, judging by how clueless the lawmakers are that questioned Zuckerberg in the Senate hearings.

The market saw this, and moved the stock back up. Facebook’s golden days are far from over.

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