Shares of Facebook opened about 2% lower on Tuesday, adding to the stock’s 7% loss on Monday. Facebook’s brutal start to the trading week comes in the wake of a user data scandal that poses serious questions about the functionality of ad-driven internet businesses, leading some investors to wonder whether fellow social media giant Twitter could be feeling the effects too.
What’s Up With Facebook?
Facebook shares have been hammered after several media reports exposed an incident that allowed a political consulting firm to access data on up to 50 million Facebook users.
The company in question, Cambridge Analytica, is a U.K.-based operation that uses data mining and data analysis to create strategic communication plans for political candidates throughout the world. The firm has been funded by conservative billionaire Robert Mercer and has ties to former Trump advisor Steve Bannon. Cambridge Analytica is also known for working with the Trump campaign during the 2016 U.S. election.
But the political consultancy is drawing headlines this week for some potentially troubling activity that started several years prior to the Trump campaign. According to stories published by The Observer and The New York Times, Cambridge Analytica was given inappropriate access to personal information from millions of Facebook users.
Facebook reportedly knew about the violation in 2015 and supposedly worked to ensure that all parties involved destroyed the data, but recent reports have suggested that not all of it was actually deleted. Facebook has suspended Cambridge Analytica from its platforms while it investigates the matter.
Why It Matters
There a plethora of reasons why investors would care about a story like this. First of all, any sort of personal data-related issue in today’s digital world is going to draw attention from government regulators. We already know that officials from the European Union are investigating whether Facebook is at fault in this case, and shareholders should rightfully be concerned about fines or heavier legal burdens in the near future.
This type of issue also calls Facebook’s corporate governance into question. If Mark Zuckerberg and the rest of the management team cannot be trusted to protect their users from data breaches or manipulative advertising, it might tarnish Facebook’s reputation—sending both individual users and major advertisers fleeing.
Finally, investors will also be concerned about any other increased costs associated with this matter. For example, if Facebook decides the proper response to the incident includes hiring more employees and investing more towards security, it could hurt the company’s bottom line. This is the type of near-term issue that an investor might not like, even if it does improve Facebook’s user experience down the line.
Is It Hurting Twitter?
Facebook’s data woes do seem to be having some sort of effect on Twitter, as the stock had slumped nearly 5% in early morning trading Tuesday. Twitter is also an ad-driven social media company, so the aforementioned questions about data security, corporate responsibility, and regulatory pressure should concern its investors too.
We know that Facebook and Twitter have both faced questions about their response to Russia’s campaign to cause mayhem and spread disinformation within U.S. internet communities during the 2016 election, and to many people, the Cambridge Analytica story is another piece in the same puzzle—one that calls into question how our society consumes social media and whether it values truth and accuracy.
Perhaps investors are starting to feel that the status quo is changing for social media companies. If users decide that they are fed up with headlines like those associated with Cambridge Analytica, the business model for brands like Facebook and Twitter might need drastic changes.
Want more market analysis from this author? Make sure to follow @Ryan_McQueeney on Twitter!
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Are Facebook's Data Woes Dragging Twitter's Stock Down?
Shares of Facebook opened about 2% lower on Tuesday, adding to the stock’s 7% loss on Monday. Facebook’s brutal start to the trading week comes in the wake of a user data scandal that poses serious questions about the functionality of ad-driven internet businesses, leading some investors to wonder whether fellow social media giant Twitter could be feeling the effects too.
What’s Up With Facebook?
Facebook shares have been hammered after several media reports exposed an incident that allowed a political consulting firm to access data on up to 50 million Facebook users.
The company in question, Cambridge Analytica, is a U.K.-based operation that uses data mining and data analysis to create strategic communication plans for political candidates throughout the world. The firm has been funded by conservative billionaire Robert Mercer and has ties to former Trump advisor Steve Bannon. Cambridge Analytica is also known for working with the Trump campaign during the 2016 U.S. election.
But the political consultancy is drawing headlines this week for some potentially troubling activity that started several years prior to the Trump campaign. According to stories published by The Observer and The New York Times, Cambridge Analytica was given inappropriate access to personal information from millions of Facebook users.
Facebook reportedly knew about the violation in 2015 and supposedly worked to ensure that all parties involved destroyed the data, but recent reports have suggested that not all of it was actually deleted. Facebook has suspended Cambridge Analytica from its platforms while it investigates the matter.
Why It Matters
There a plethora of reasons why investors would care about a story like this. First of all, any sort of personal data-related issue in today’s digital world is going to draw attention from government regulators. We already know that officials from the European Union are investigating whether Facebook is at fault in this case, and shareholders should rightfully be concerned about fines or heavier legal burdens in the near future.
This type of issue also calls Facebook’s corporate governance into question. If Mark Zuckerberg and the rest of the management team cannot be trusted to protect their users from data breaches or manipulative advertising, it might tarnish Facebook’s reputation—sending both individual users and major advertisers fleeing.
Finally, investors will also be concerned about any other increased costs associated with this matter. For example, if Facebook decides the proper response to the incident includes hiring more employees and investing more towards security, it could hurt the company’s bottom line. This is the type of near-term issue that an investor might not like, even if it does improve Facebook’s user experience down the line.
Is It Hurting Twitter?
Facebook’s data woes do seem to be having some sort of effect on Twitter, as the stock had slumped nearly 5% in early morning trading Tuesday. Twitter is also an ad-driven social media company, so the aforementioned questions about data security, corporate responsibility, and regulatory pressure should concern its investors too.
We know that Facebook and Twitter have both faced questions about their response to Russia’s campaign to cause mayhem and spread disinformation within U.S. internet communities during the 2016 election, and to many people, the Cambridge Analytica story is another piece in the same puzzle—one that calls into question how our society consumes social media and whether it values truth and accuracy.
Perhaps investors are starting to feel that the status quo is changing for social media companies. If users decide that they are fed up with headlines like those associated with Cambridge Analytica, the business model for brands like Facebook and Twitter might need drastic changes.
Want more market analysis from this author? Make sure to follow @Ryan_McQueeney on Twitter!
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>>