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Can Software Majors Brave the Facebook Data Security Storm?
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On Monday, the Nasdaq and the S&P 500 experienced their heaviest losses since Feb 8. These losses were triggered by a decline in shares of Facebook, Inc. following an outrage over the social network provider’s data security policies. A larger tech selloff ensued with sector majors also suffering losses, leading to an overall decline.
The social network giant’s losses were largely a product of news reports published on either side of the pond. Subsequently, legislators on both sides of the pond have called for greater scrutiny of how social networking platforms secure user data. Not only does this incident have immediate ramifications for Facebook, it could easily impact other tech majors as a previously unregulated arena comes under closer regulatory focus.
Facebook, Tech Majors Plunge on Adverse Reports
Following news reports on both sides of the pond, shares of Facebook lost 6.8%, reducing the social media giant’s market capitalization by $36 billion. The stock ended the trading day at $172.54, suffering its largest one-day decline since Mar 26, 2014.
The reports which triggered the decline were a product of whistleblower Christopher Wylie’s revelations to TheObserver and The New York Times. Wylie provide details as to how data firm Cambridge Analytica utilized Facebook user data obtained in an unauthorized manner to create a system that was capable of generating individual profiles for U.S. voters.
These profiles would then be utilized to create personalized political advertising, intended to influence swing voters in particular. Incidentally, Cambridge Analytica is owned by hedge fund billionaire and conservative donor Robert Mercer and was run at that time by President Trump’s former advisor Steve Bannon. It comes as no surprise then that the data firm was used by the Trump campaign in 2016.
Last Friday, Facebook acknowledged that a professor had utilized a personality analysis app which he claimed he had designed only for research purposes. Nearly 270,000 individuals allowed their data to be accessed, in turn exposing their friends on Facebook. According to the New York Times, this led to the exposure of data on nearly 50 million individuals.
Subsequently, the professor violated Facebook’s terms of use and allowed Cambridge Analytica to use the data. Upon learning of this indiscretion, Facebook asked the firm to affirm whether it had deleted this data set. However, on Friday, Facebook suspended the professor, Wylie and Cambridge Analytica on learning that it had still not erased the information.
Implications for Facebook
Apart from suspending Cambridge Analytica, Facebook has announced that it has engaged a digital forensics company which will conduct an audit to ascertain whether the firm still retains copies of the data. A large section of analysts acknowledge that the incident is a major image related challenge for Facebook and also triggers regulatory risks. It could even force Facebook to change its news feed and entire platform further.
But Facebook has improved its user privacy norms since the time of the incident. Further, several analysts feel that Facebook can satisfy regulators by raising its expenditure on security and oversight, even as it weathers a storm in the near term. One fallout of these measures could be that advertisers could grow increasingly unsatisfied as Facebook begins to ban several kinds of measurements.
Wider Impact Likely
Republican John Kennedy and Democrat Amy Klobuchar, both members of the Senate judiciary committee have asked for a hearing with CEOs of tech majors such as Alphabet, Twitter and Facebook. Last fall, these companies had to testify in Washington following reports that they had been influenced by foreign actors during the last U.S. presidential election.
It is likely that these fresh revelations will lead to even greater government oversight, leading to tougher regulation of the social networking space. Though Facebook possibly faces no near term threat as a result of these events, the broader tech arena will have to suffer the consequences of greater government scrutiny. These actions could eat into the profits of major sector players, forcing them to modify their business models.
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Can Software Majors Brave the Facebook Data Security Storm?
On Monday, the Nasdaq and the S&P 500 experienced their heaviest losses since Feb 8. These losses were triggered by a decline in shares of Facebook, Inc. following an outrage over the social network provider’s data security policies. A larger tech selloff ensued with sector majors also suffering losses, leading to an overall decline.
The social network giant’s losses were largely a product of news reports published on either side of the pond. Subsequently, legislators on both sides of the pond have called for greater scrutiny of how social networking platforms secure user data. Not only does this incident have immediate ramifications for Facebook, it could easily impact other tech majors as a previously unregulated arena comes under closer regulatory focus.
Facebook, Tech Majors Plunge on Adverse Reports
Following news reports on both sides of the pond, shares of Facebook lost 6.8%, reducing the social media giant’s market capitalization by $36 billion. The stock ended the trading day at $172.54, suffering its largest one-day decline since Mar 26, 2014.
Consequently, shares of Apple Inc. (AAPL - Free Report) , Alphabet Inc. (GOOGL - Free Report) , Twitter, Inc. and Snap Inc. (SNAP - Free Report) declined 1.5%, 3%, 1.7% and 3.5%, respectively. Facebook has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Unauthorized Data Harvest
The reports which triggered the decline were a product of whistleblower Christopher Wylie’s revelations to The Observer and The New York Times. Wylie provide details as to how data firm Cambridge Analytica utilized Facebook user data obtained in an unauthorized manner to create a system that was capable of generating individual profiles for U.S. voters.
These profiles would then be utilized to create personalized political advertising, intended to influence swing voters in particular. Incidentally, Cambridge Analytica is owned by hedge fund billionaire and conservative donor Robert Mercer and was run at that time by President Trump’s former advisor Steve Bannon. It comes as no surprise then that the data firm was used by the Trump campaign in 2016.
Last Friday, Facebook acknowledged that a professor had utilized a personality analysis app which he claimed he had designed only for research purposes. Nearly 270,000 individuals allowed their data to be accessed, in turn exposing their friends on Facebook. According to the New York Times, this led to the exposure of data on nearly 50 million individuals.
Subsequently, the professor violated Facebook’s terms of use and allowed Cambridge Analytica to use the data. Upon learning of this indiscretion, Facebook asked the firm to affirm whether it had deleted this data set. However, on Friday, Facebook suspended the professor, Wylie and Cambridge Analytica on learning that it had still not erased the information.
Implications for Facebook
Apart from suspending Cambridge Analytica, Facebook has announced that it has engaged a digital forensics company which will conduct an audit to ascertain whether the firm still retains copies of the data. A large section of analysts acknowledge that the incident is a major image related challenge for Facebook and also triggers regulatory risks. It could even force Facebook to change its news feed and entire platform further.
But Facebook has improved its user privacy norms since the time of the incident. Further, several analysts feel that Facebook can satisfy regulators by raising its expenditure on security and oversight, even as it weathers a storm in the near term. One fallout of these measures could be that advertisers could grow increasingly unsatisfied as Facebook begins to ban several kinds of measurements.
Wider Impact Likely
Republican John Kennedy and Democrat Amy Klobuchar, both members of the Senate judiciary committee have asked for a hearing with CEOs of tech majors such as Alphabet, Twitter and Facebook. Last fall, these companies had to testify in Washington following reports that they had been influenced by foreign actors during the last U.S. presidential election.
It is likely that these fresh revelations will lead to even greater government oversight, leading to tougher regulation of the social networking space. Though Facebook possibly faces no near term threat as a result of these events, the broader tech arena will have to suffer the consequences of greater government scrutiny. These actions could eat into the profits of major sector players, forcing them to modify their business models.
Today's Stocks from Zacks' Hottest Strategies
It's hard to believe, even for us at Zacks. But while the market gained +18.8% from 2016 - Q1 2017, our top stock-picking screens have returned +157.0%, +128.0%, +97.8%, +94.7%, and +90.2% respectively.
And this outperformance has not just been a recent phenomenon. Over the years it has been remarkably consistent. From 2000 - Q1 2017, the composite yearly average gain for these strategies has beaten the market more than 11X over. Maybe even more remarkable is the fact that we're willing to share their latest stocks with you without cost or obligation.
See Them Free>>