Some traders see Facebook’s crisis as an opportunity to buy on the cheap

Buy! Buy! Buy!
Buy! Buy! Buy!
Image: Reuters/Stephen Lam
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For Facebook, how bad can it get? The company lost $50 billion in market value in the first two trading days after it emerged that over 50 million of its users unknowingly had their data harvested in service of Donald Trump’s presidential campaign.

The data was collected by Cambridge Analytica, a British firm that consulted for the campaign (and many others around the world). Regulators and politicians on both sides of the Atlantic are mounting investigations and calling for Facebook’s top executives to explain themselves.

But on the third day, investors bought the dip.

Early trading in Facebook’s shares today suggested it was going to be another downer for the social network. But the bulls rapidly rushed in, and pushed the scandal-stricken stock up by 3% at one point. At the time of writing, Facebook’s shares were up by around 2% for the day, on heavy trading volumes. Still, that’s roughly 7% lower than at the close of last week, before the Cambridge Analytica scandal broke.

So, what stories are investors telling themselves about Facebook’s value? A Barclays research note today sets out a few scenarios. When tech giants have fallen historically—think AOL, Yahoo, or MySpace—it’s been because of shifts in technology, not because users suddenly quit en masse. Consider AOL losing out to the open web and Yahoo failing to move to mobile. (Barclays is less convincing with its example of MySpace, which it says was plagued by unspecified technical issues, but ultimately abandoned by users in favor of the cooler and more relevant Facebook.)

As Barclays points out, how the market prices Facebook’s stock now will reveal how much of an essential “utility” it is. Do its “like” buttons, Instagram Stories, and WhatsApp messages put the company in the same league as Google and Amazon?

“The question we often ask ourselves during these turbulent times is just how much of a must-have utility is Facebook? If it provides enough utility to users that they won’t care about the data leakage and the ‘bad-for-society’ debate, then the stock is a buy here. If the utility nature of the service is well below Amazon and Google, and users will go elsewhere when problems arise (which we’ve always seen as a key risk), then we could see risk from the narrative becoming reality.”

As for whether Facebook’s stock has further to fall, Barclays offers some historical perspective. Recent corporate scandals, like Equifax’s data breach and Volkswagen’s emissions cheating, sent stock prices tumbling for a week or two before bottoming out. Barclays thinks Facebook’s stock is likely to behave in a similar way, although on today’s evidence investors may be more optimistic than that.

Or, this could be a false dawn. Less encouragingly for Mark Zuckerberg and company, Barclays points out that when a crisis gets really drawn out, stock prices can wiggle downwards for a long time. It took BP 48 trading days—or nearly three calendar months—to find its trough after its Deep Water Horizon rig spilled 4.9 million barrels of oil into the Gulf of Mexico in 2010. By the time the rout was over, the company was worth half of what it was before the disaster.