The reckoning for Facebook has been swift. In just two days, Facebook’s market value plunged by $50 billion after public revelations that Cambridge Analytica, a consultancy and data analytics firm, skirted the social network’s rules and mined tens of millions of Facebook profiles to influence voter decisions, namely the 2016 US presidential election.
The tech giant, which is already under fire for its role in enabling Russian meddling in the US election, is struggling to contain the backlash, with founder Mark Zuckerberg and COO Sheryl Sandberg ominously silent. As traders dump the stock, Facebook is starting to feel similar pressure from its investors.
Nordea, the Nordic region’s largest bank, said late yesterday that it would no longer authorize the buying of Facebook stock in its sustainable investment unit. Sasja Beslik, head of the bank’s sustainable finance division, said that between the Cambridge Analytica exposé, “the overhanging threat” of more regulation of social media platforms, and new European data privacy rules, Nordea had decided to “quarantine” Facebook shares.
Meanwhile, Facebook was sued in a San Francisco federal court by shareholders in a class-action suit. They allege to have suffered losses because of Facebook’s failure to properly safeguard data privacy. The lawsuit would represent people who bought shares starting on Feb. 3, 2017, when the company issued its annual report and cited security breaches and improper access to user data, through this Monday (March 19), Bloomberg reported.
Despite the political and market firestorm engulfing Facebook right now, equity analysts remain bullish. Of 32 analyst recommendations compiled by FactSet since the end of January, 29 are “buy” or “overweight” ratings, two are “hold,” and just one is a “sell.” Seven of the recommendations were made this Monday and Tuesday, after the Cambridge Analytica scandal hit the news. The average share price target of current broker recommendations is around $223. At the close on Tuesday, Facebook’s stock price was just over $168.
The lone sell recommendation comes from Brian Wieser of Pivotal Research Group, a New York-based equity research firm whose CEO has a background in stock research on media and communications companies. His stock price target is $152, and in a note dated March 19 he says the Cambridge Analytica scandal is another indication of “systemic problems” at Facebook. Even then, the analyst doesn’t expect the episode to hurt Facebook’s business in the short term.
“We don’t think advertisers will suddenly change the trajectory of their spending growth on the platform… our negative call is still primarily informed by a view that says there are limits to the company’s growth (and for digital advertising more generally) relative to the size of the overall advertising economy,” Wieser wrote in the note.
The financial, political, and legal consequences facing Facebook are not yet big enough to convince analysts and investors that Facebook’s business is at risk, even if some are now talking the stock down or putting off purchases. Advertisers have the power here.