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Facebook Roundup: Data Breach, Incriminating Emails, Share Buybacks & More

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Yet another data breach, incriminating internal email communications, share buybacks and analyst opinions were among the most important news on Facebook (FB - Free Report) in the recent past. Here are the details-

More User Data Exposed

In what is a rather quick sequel to the big expose of data belonging to 30 million Facebook users, the social media company said that a software glitch inadvertently exposed unshared photos of around 6.8 million users for about 12 days ending Sep 25.

The problem apparently happened when users granted photo access permission to third party apps, which normally allows access to timeline photos only. But in this case, other photos, including some that may have been embarrassing to users were shared with around 1,500 apps built by 876 developers.

Tomer Bar, an engineering director at Facebook, apologized in an official blog post: "We’re sorry this happened…Early next week we will be rolling out tools for app developers that will allow them to determine which people using their app might be impacted by this bug. We will be working with those developers to delete the photos from impacted users."

The problem may have been fixed thereafter, but Facebook’s problems appear to have only started. While the company avoided mentioning how many of these users were from Europe, the matter has already been reported to the Irish Data Protection Commissioner (DPC), Facebook’s main privacy regulator in the region.

What’s more, the regulator has said that it is already investigating the matter, as well as the data breach in October. "With reference to these data breaches, including the breach in question, we have this week commenced a statutory inquiry examining Facebook’s compliance" with Europe’s GDPR, said DPC spokesman Graham Doyle. The inquiry could cost Facebook $1.6 billion (£1.3bn) in fines.

Internal Emails Show Bad Intentions

A committee of UK lawmakers has published a host of internal emails from 2012 to 2015 between company leaders, including Chief Executive Mark Zuckerberg that shows the company’s lax attitude toward user data. Not only did the company treat user data as its personal property, but it also chose to share that data with business allies like Netflix (NFLX - Free Report) and Airbnb while keeping it from competing apps like Twitter (TWTR - Free Report) .

The documents, which were under seal in a California court case, were obtained by compelling the founder of U.S. company Six4Three to hand them over during a business trip to London.

U.S. Senator Richard Blumenthal didn’t mince his words when referring to the "mounting evidence that Facebook acted chaotically, recklessly and lawlessly by granting access to private consumer data for financial gain."

Damian Collins, a Conservative British parliamentarian who leads a committee on media and culture, tweeted that "they [the documents] raise important questions about how Facebook treats users' data, their policies for working with app developers, and how they exercise their dominant position in the social media market."

Zuckerberg wrote in a Facebook post: "Ultimately, we decided on a model where we continued to provide the developer platform for free and developers could choose to buy ads if they wanted…Other ideas we considered but decided against included charging developers for usage of our platform, similar to how developers pay to use Amazon AWS or Google Cloud. To be clear, that's different from selling people's data."

The company denies wrong doing and maintains that the emails were taken out of context to suit a certain purpose when the company's changes were in fact meant to "shut down abusive apps."

Russian Help For Trump

A special report put together by Oxford University’s Computational Propaganda Project and network analysis company Graphika for the Senate Intelligence Committee discusses a study of millions of social-media posts across Facebook, Instagram, Twitter, Alphabet’s (GOOGL - Free Report) Google+, Pinterest and Tumblr over a number of years.

The report found that a Russian disinformation campaign ran in full swing before the elections, encouraging conservatives to support Trump’s campaign while “The main groups that could challenge Trump were then provided messaging that sought to confuse, distract and ultimately discourage members from voting.” It warned that social media networks had degenerated into “a computational tool for social control, manipulated by canny political consultants and available to politicians in democracies and dictatorships alike.”

The news was revealed by the Washington Post.  

Australia Investigates Market Dominance

The Australian Competition and Consumer Commission (ACCC) is looking to establish a regulatory framework that would bring dominant technology platforms Facebook and Google under greater scrutiny, especially with respect to the advertising and digital news distribution markets.

In a preliminary report, the regulatory authority has said that on the one hand, “consumers face a potential risk of filter bubbles, or echo chambers, and less reliable news on digital platforms” while on the other, advertisers run the risk of being sidelined when competing with the companies’ own products (like Google Shopping) because algorithms are a closely guarded business secret.

The report has therefore outlined 11 recommendations and eight areas for further analysis that will yield a final report sometime in June. It seeks to grant investigative and monitoring powers to the existing or new watchdog to determine how these companies rank and display ads and news.   

Facebook said it remains “committed to working with the commission as they review the contribution of all digital platforms in Australia.”

Google said “we develop innovative products to the benefit of consumers, businesses and the economy, and we work closely with advertisers and publishers across Australia.”

Ad Transparency Measures In India

Facebook now requires Indian advertisers running political ads on its platforms to first confirm their identity and location as the world’s largest parliamentary democracy heads toward elections next year. The measures are similar to those implemented in the U.S. and UK with varying degrees of success, as wrong doers managed to find loopholes in some cases.

Facebook’s intention is to prevent foreign interference in the elections, so its earlier involvement with Cambridge Analytica (that contracted with the Congress party to do just that) has made everyone wary. Vetting an advertiser can take weeks, so maybe its efforts will not be in vain.

Share Buybacks

The board of directors has approved a plan to buy back an additional $9 billion worth of Facebook shares. Last year, it approved a plan worth $15 billion. Share buybacks have allowed companies to return value to shareholders after the government lowered taxes.

In Facebook’s case, the tool may be that much more useful as the company has lost 24.5% year to date (33.9% in the last six months) as it has been embroiled in scandal after scandal, large scale data breaches and slower growth with the CEO losing favor with lawmakers around the world.

Analyst Opinion

Stifel Nicolaus analyst Scott Devitt downgraded Facebook shares from "Buy" to "Hold” fearing “too many adversaries” in politicians, consumers and employees. "The political and regulatory blowback seems like it may lead to restrictions on how Facebook operates, over time," he says and adds, “Most importantly, consumers and some employees seem to have grown disenchanted with the company."

He mentioned results from an on-going survey of Facebook users showing that 79% believe Facebook's impact on society is neutral or negative, up from 73% in January. Also of concern was the fact that 60% said they rarely or never used key new products like Facebook Stories, Marketplace and video.

Deutsche Bank analyst Lloyd Walmsley begs to differ. The analyst considers Facebook the top pick among large Internet stocks, with an "extremely attractive" valuation. "We continue to view Facebook as the best risk/reward in large cap Internet given the potential for core Facebook engagement to stabilize, for monetization in the Stories format to drive a potential re-acceleration in growth in mid-2019, for the negative news cycle to abate and given the extremely attractive current valuation," he says. He reiterated the Buy rating and made no change to estimates.

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