Facebook (FB - Free Report) recently announced that it has suspended tens of thousands of apps under its ongoing App Developer Investigation, which is focused on improper data use by third-party developers.
We note that the company has been undertaking a number of initiatives to improve privacy and security of its platform and services. These are primarily aimed at protecting user information, regaining trust and improving user engagement, which are crucial for the company’s growth.
Notably, Facebook’s announcement comes close on the heels of the Federal Trade Commission charging the company with a $5 billion fine for privacy violation.
Per the recent announcement, apps associated with 400 developers were suspended for a variety of reasons including the inability or failure of response to Facebook’s request for information. The company has suspended apps in testing phase and also banned a few completely.
Additionally, Facebook has taken legal action against South Korea's Rankwave for non-cooperation. The company also took legal action against LionMobi and JediMobi, which used malware for gaining profit.
Notably, in May 2018, Facebook had suspended 200 apps, which grew to 400 apps by August 2018. The spurt in the number of app suspensions in a year also reveals an increase in privacy issues.
Initiatives to Help Regain User Trust
Facebook’s initiatives to improve privacy, transparency and authenticity of ads and removal of fake accounts from the platform are expected to boost user trust and engagement.
However, the company’s security initiatives are expected to lower ad-targeting capabilities of advertisers, which will hurt the top line.
Per Market Watch report, the company is discouraging advertisers and celebrities making money from sponsored posts on quick-fix diet products on Instagram. Facebook is also clamping down on health content promoting weight loss and cosmetics on the platform.
Celebrities including the likes of Kim Kardashian have been facing flak from users for posting about the benefits of appetite suppressants while Jemma Lucy has been criticized for promoting 'fat burning' drinks.
Facebook’s recent privacy friendly initiatives are expected to boost user engagement. The company is working on making its products and services end-to-end encrypted and ephemeral so that user information is not available for long.
Additionally, the company has launched a feature that helps users to ‘unsend’ any message delivered through Messenger within a 10-minute window, whether it was sent to a single person or to a group chat. Notably, Facebook-owned WhatsApp already offers a “delete for everyone” feature.
Moreover, Facebook launched a tool that will help Android users turn off location tracking. Notably, Apple’s (AAPL - Free Report) iOS already offers tools that help users allow, partially allow or totally disallow tracking.
These initiatives are expected to boost user trust and eventually drive engagement across the company’s “Family” of services, which includes Facebook, WhatsApp, Instagram and Messenger.
Zacks Rank & Stocks to Consider
Currently, Facebook carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the broader Computer & Technology sector are Perficient (PRFT - Free Report) and Chegg (CHGG - Free Report) , each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Long-term earnings growth rate for Perficient and Chegg is currently pegged at 10.75% and 30%, respectively.
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