Damaging revelations about how Facebook’s leaders mishandled Russian efforts to disrupt the 2016 American election are beginning to take a measurable toll, with the company’s stock plunging to a yearly low.
The entire tech sector has been battered, with members of the FAANG group — Facebook, Apple, Amazon, Netflix and Google — down more than 20% from their yearly highs. Facebook is flat in today’s trading session, but it is down nearly 40% from July. Since going public at $38 in 2012, Facebook has never had a down year, but 2018 could well be the first.
Facebook’s latest challenge is coping with the fallout from the New York Times report last week that detailed company’s efforts to ignore, then attempts to minimize, the foreign influence campaign on its platform.
The Wall Street Journal reported that CEO Mark Zuckerberg is feeling embattled, as the company fends off attacks from lawmakers, investors and angry users, some of whom have revived the social media call to #DeleteFacebook.
Dissatisfied with the pace of addressing problems, Zuckerberg has become more assertive, adopting a general-at-war posture that has put him at odds with the company’s longtime chief operating officer, Sheryl Sandberg, according to published reports.
Investors worry about how advertisers, and users, will respond to these latest revelations, which come on the heels of the Cambridge Analytica data scandal this spring and a more recent security breach that exposed the private information of millions of Facebook users.
Pivotal Research analyst Brian Wieser said the Russia-related disclosures have opened a debate about whether morals matter, at Facebook or elsewhere in the advertising industry.
“Risks from immoral behavior at a corporate level are greater because they create the possibility that a brand could be tarnished by association with the media owner in the future and because it reduces the trust that must exist between different parties in order to manage commercial relationships,” Wieser wrote.
More critical stories are bound to follow in the months to come, especially if Facebook executives are called before Congress for another round of hearings.
“Marketers might not cut spending directly, but scrutiny of budgets on Facebook will increase, as will the time Facebook executives will spend explaining themselves the next time something goes wrong,” Wieser observed. “Attracting and retaining talent to work at Facebook, who will decide for themselves whether or not morality matters and whether it matters enough at Facebook will be yet another intangible factor for investors to consider.”
Michael Pachter of Wedbush Securities has a different view. He told Deadline he considers regulation “a certainty, but it’s unlikely to be onerous.” Rather than a classic antitrust case showing the company is anti-competitive, which could be difficult to prove, Pachter expects stricter regulation of safety and security policy, which in turn could make Facebook more difficult to use.
Even so, he added, “I think any impact from regulation is transitory, and over the longer term, it won’t materially impact advertisers or users.”
A dozen consumer and advocacy groups, united under the banner of Freedom from Facebook, filed a complaint last week with the Federal Trade Commission urging it to investigate a possible breach of the 2011 consent decree. Under that settlement, the company said it would protect the privacy and confidentiality of users’ information, and obtain consumers’ express consent before making changes that override their privacy preferences — areas where advocates argue Facebook has fallen short.
The group also called for an expanded investigation to examine the social network’s market power and the threats posed by its massive accumulation of data.
“Facebook Inc. and the other biggest tech platform monopolies are fast breaking all traditional bounds of scale and behavior,” Freedom from Facebook wrote in their FTC complaint. “Consumers as a result look to you for meaningful protection and enforcement — especially in the case of a serial privacy violator like Facebook.”