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Facebook (FB) Likely to Introduce Privacy-Focused Features

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Facebook (FB - Free Report) CEO Mark Zuckerberg recently announced plans to introduce features that will completely secure user data on its messaging platforms. The features will make data accessibility harder not only for governments but also for Facebook.

Notably, Facebook’s WhatsApp service already has an end-to-end encryption feature, which allows only the parties involved to access the messages.

Zuckerberg believes that private conversations within relatively closed community are one of the quickly growing areas of digital communications. This is the reason behind the intended shift to privacy-focused platforms as opposed to Facebook’s original model of open sharing.

Facebook is looking to merge all its messaging apps — WhatsApp, Messenger and Instagram — to allow users to easily communicate within its family of services. Notably, all the three services will continue to remain separate apps. However, Facebook’s efforts to merge the services in European Union (EU) may be stalled if they don’t comply with General Data Protection Regulation (GDPR) requirements.

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How Will This Move Benefit Facebook?

The move is expected to boost user confidence at a time when Facebook has been mired in controversies owing to its failure in securing user data.

The company’s efforts to bring the "ephemeral messaging" feature — messages that cease to exist after a set time — to all content that needs to be secured is expected to increase user activity. Facebook’s ephemeral feature will allow users to set their own time limit for the messages to disappear. Additionally, users can also choose to opt out of the feature.

Notably, Instagram saw surge in monthly users (MAUs) after introducing ephemeral messaging, a feature copied from rival Snap (SNAP - Free Report) , in Instagram Direct, per TechCrunch.

Moreover, with the encryption feature in place Facebook may stop moderating content for good. This will help the company focus on its core competence and reduce security-related expenses. Although the company invested heavily in enhancing security features, it couldn’t completely curtail spread of misinformation and violence.

Potential Downsides of Encryption

The downside is that unlawful or unethical behavior may be difficult to monitor, which has been a concern for Facebook for some time. Additionally, the company may face criticism from governments who frequently ask it to notify them of accounts violating the platform’s guidelines.

Moreover, with no access to user data, Facebook is unlikely to provide targeted ads, from which it derives a major chunk of advertising revenues. Notably, advertising revenues (98.4% of total revenues) soared 30.2% year over year to $16.64 billion in fourth-quarter 2018.

However, Facebook may look at other avenues like payments, commerce and games to diversify revenue streams and reduce dependence on ad revenues, a model Tencent Holding (TCEHY - Free Report) found success with.

Also, improving privacy may help this Zacks Rank #2 (Buy) company gain an edge over Twitter (TWTR - Free Report) .

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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