Shares of Facebook, Inc. (FB - Free Report) finally bounced back after three weeks of turmoil. The company’s shares popped on investors’ confidence, which was reinstated following the testimony by the company’s CEO Mark Zuckerberg, in front of Congress on Tuesday. The social media giant has been embroiled in a data misuse scandal that affected personal information of millions of its users. The company’s shares tumbled after the scandal came to light in March and has since been suffering.
News of data analysis firm, Cambridge Analytica, unethically harvesting user data, not only hit Facebook but also the entire tech sector. Tech stocks, which have been driving markets this year after a lucrative 2017, have been suffering for the past few weeks, with shares of all major companies plummeting on fears of a regulatory clampdown on major tech giants. That said, Zuckerberg’s testimony only proves that investors still rest their faith in the stock, as Facebook has been one of the top performing stocks on a yearly basis and hit a high in February, before its almost 11% in the last month.
Zuckerberg’s Testimony Helps Facebook
After suffering for three weeks, on Tuesday, Facebook’s shares jumped 4.5%, as Zuckerberg testified in front of the Senate Judiciary and Commerce committees, following news of a data misuse scandal that affected personal information of 87 million users. This was Facebook’s best day in two years. However, Zuckerberg’s testimony, which will continue on Wednesday, helped the social media giant bounce back and boost investors’ confidence.
During his hearing, Zuckerberg told Congress that his company did not notify the Federal Trade Commission (FTC) in 2015 about the leak as it considered it a “closed case.” He also said Facebook was trying hard to correct issues with its platform and that it is a misconception that the company shares or sells data to its advertisers.
Facebook Remains a Strong Performer
On Mar 19, the social media giant’s shares tanked 6.8%, its worst decline in four years. Since then, Zuckerberg has been trying hard to salvage the image of the company, as investors continued to punish the stock. Zuckerberg’s testimony definitely raises hopes in the minds of investors, who so long have rested assured of company’s prospects (read more: Can Zuckerberg's Sorry Image Save Facebook Stock?).
At the same time, Facebook has been one of the better performing stocks and being one of the key companies in the broader technology sector, has been driving markets since last year. The company’s shares touched a high of $195.32 per share in February before it was rocked by the data misuse scandal. The company’s shares have increased 17.8% in the last year.
Facebook’s scandal has been taking its toll on the entire tech sector for the last three weeks. Zuckerberg in his testimony also said that he will welcome the right regulations. He added that Facebook should provide a free ad supported service to its users, as the company believes in offering free service so that everyone can afford it.
Regulations a Cause of Worry
Besides Facebook, other FANG stocks, Amazon.com, Inc. (AMZN - Free Report) , Netflix, Inc. (NFLX - Free Report) and Alphabet Inc. (GOOGL - Free Report) , soared on Tuesday. Google, Amazon and Netflix surged 1.6%, 2.14% and 2.8%, respectively, while the Technology Select Sector SPDR (XLK)jumped 2.5%. FANG stocks along with other tech companies have been suffering since the Facebook data scandal became public on fears of being summoned for congregational hearings by the Senate. And the worries are not yet over. Amazon has a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Concerns of a regulatory clampdown on how tech and Internet companies handle user data, still looms large on these companies. A regulatory clampdown means restricted use or ad-free paid service, which will weigh on the companies as they tend to lose users, who can’t afford paid service.
Although Zuckerberg has promised to take all necessary measures to avoid such incidents being repeated, call has grown on the government to try and step in. Interestingly, Zuckerberg managed to avoid making any promises related to regulation. During the hearing, he deflected from making any promises in support of any congressional regulation on Facebook and other U.S. Internet companies. “I’ll have my team follow up with you so that way we can have this discussion across the different categories where I think this discussion needs to happen,” said Zuckerberg. Perhaps this is the biggest reason behind the company’s shares making a turnaround on Tuesday.
Moreover, the FTC is already investigating the data misuse scandal and it is trying to find out if Facebook violated a 2011 consent decree with the FTC. According to the decree, Facebook is required to give clear and prominent notice to its users and obtain their consent before sharing their personal information. If it finds Facebook to have violated the 2011 consent decree, it could spell further trouble for the company. This certainly has raised fears in the minds of other tech companies. And now it needs to be seen how Facebook performs in the days to come.
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