Facebook loses $58 billion

As controversy continues to grow regarding the Facebook user data breach, the value of the company has dropped by $58 billion within the span of one week.

Background

Facebook, a social media and social networking site, was launched by Mark Zuckerberg in 2004 along with some of his Harvard roommates. Almost instantly the site was a hit among its users and grew exponentially across the world. As of June 2017, Zuckerberg said that Facebook had two billion users monthly.

Facebook has more than 2 billion monthly active users as of June 2017. Its popularity has led to prominent media coverage for the company, including significant scrutiny over privacy and the psychological effects it has on users.

In May 2017, it emerged that Facebook was a key influencer in the outcome of the 2016 US Presidential election and the Brexit vote, according to those who ran the campaigns. Those in charge of these digital campaigns believe that the social network was decisive in both wins. In the past years, social media in general has come under scrutiny for hate campaigns and terrorist propaganda, the presence of bots, and the proliferation of so called fake news ahead of elections.

Since the start of 2018, Facebook has committed to making significant changes to their platform. In a post on his page on the social network early this month, creator and CEO Mark Zuckerberg said the website was making too many errors enforcing policies and preventing misuse of its tools. Zuckerberg has famously set himself challenges every year since 2009. This year the Facebook creator said his “Personal challenge” is to fix important issues with the platform to prevent misuse of the website.

Analysis

In March 2018, Facebook came under scrutiny for its links to political data mining company Cambridge Analytica. Cambridge University professor Aleksandr Kogan reportedly sold personal user information collected from 50 million Facebook users to Cambridge Analytica. Experts have stated that this is one of the largest data breaches of personal information.

Other names linked to Cambridge Analytica include Robert Mercer, conservative American billionaire, and Steve Bannon, former White House Chief Strategist for President Trump. The company is also part of an investigation by the UK Information Commissioner’s Office into the risks of using data analytics for political purposes.

Since the scandal came to light, the value of Facebook shares has dramatically dropped and the hashtag #DeleteFacebook has begun trending on other social media channels such as Twitter. Mark Zuckerberg, the founder of Facebook has meanwhile apologized for the company’s actions. “We have a responsibility to protect your data, and if we can’t then we don’t deserve to serve you,” Zuckerberg wrote. He noted that the company has already changed some of the rules that enabled the breach, but added: “We also made mistakes, there’s more to do, and we need to step up and do it”.

Within the span of one week, the value of Facebook had dropped by $58 billion. Investors did not respond to Zuckerberg’s apology and have continued to sell shares of the company. Shares in the social media company fell from $176.80 on Monday to around $159.30 by Friday night.

Brian Wieser, senior analyst at Pivotal Research said, “I had a $152 price target on Facebook for 2018 - and that was before the events of this week.” Hargreaves Lansdown senior analyst Laith Khalaf spoke about how within one week, massive damage had been done to the Facebook brand. "One of the secrets of Facebook's success has been that the more people who use Facebook, the more integral it becomes to its customers. Unfortunately for Facebook, the same dynamic cuts in the opposite direction, if it loses a meaningful number of users as a result of this scandal. "

In addition, key advertisers have begun pulling ads from the platform. Elon Musk has deleted the social media pages for his companies from Facebook. Advertising firm M&C Saatchi's founding director David Kershaw said, “"Make no mistake Facebook is an amazing medium from the advertiser's point of view because of the accuracy of its targeting - which comes from data. But I think those large companies are very nervous to be associated with a medium where the data is being abused, particularly in a political context.”

Assessment

Our assessment is that Facebook seems to have lost the trust of not only its users but also advertisers key to its revenue generation. The Cambridge Analytica episode may have caused irreparable damage to the company that was once infallible. It remains to be seen whether Zuckerberg will be able to right the ship in the near future. We believe that institutional investors and sovereign funds will be under pressure to offload their investments in companies like Facebook. What Facebook has done is to break the trust between society and technology.

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