Stocks

Facebook Stock Plunges Again, Analysts Still Not Worried

Facebook Inc (NASDAQ:FB) stock flipped back into the red during premarket trading hours today after what looked like a recovery on Thursday. The social media firm announced changes to its privacy settings in an attempt to calm users and investors. Analysts continue to expect no impact on the company’s fundamentals, but investors’ fears about Facebook stock don’t appear to be resolved yet.

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Mark Zuckerberg speaks out… and returns fire at Tim Cook

Facebook CEO Mark Zuckerberg finally broke his silence over the data privacy concerns involving Cambridge Analytica in an interview with Vox co-founder Ezra Klein. Clearly, he was trying to calm users, but some of what he said may be seen as even more concerning in light of the data misuse situation.

For example, Klein noted that Zuckerberg said in another recent interview that Facebook’s position is closer to that of a government rather than a company. This view alone should be seen as concerning because having your life run by a corporation is far from being under a democracy. Zuckerberg explained that they have to govern the content users post and the disputes that sometimes arise over it, and he even said that they need to create “a more democratic or community-oriented process” that works for people around the globe.

Democracy?

However, his commentary didn’t exactly sound like it’s coming from someone with democracy in mind. He said that Facebook is “a controlled company … not at the whims of short-term shareholders.” He also emphasized that they have complete control over the design of the company’s “products and decisions with what is going to be in the best interest of the community over time.”

His comments call to mind what Macquarie analyst Benjamin Schachter said earlier this year when the company announced that it was overhauling its News Feed algorithm to downrank content from publishers and decide for users what they should view as meaningful. Zuckerberg has majority voting control over the company he founded, which means shareholders have little to no ability to affect change when they don’t like what he does.

Of course, Zuckerberg did do a better job of making their ability to decide what users should find value in than the damning memo by another Facebook executive that was leaked last week. Andrew Bosworth told employees that what they do with users’ personal data is completely justified.

The Facebook founder also blasted Apple CEO Tim Cook for his harsh commentary last week. Cook criticized the social media firm’s business model of selling its users as its product, and Zuckerberg had some harsh criticism for Apple’s practice of charging high prices for its products. He Vox that it’s important that consumers not allow companies “that work hard to charge you more convince you that they actually care more about you.”

Facebook changes privacy settings

Facebook did announce some changes to its privacy settings last week, saying it would make it easier for users to control their personal data. Unsurprisingly, analysts were quick to praise the move and continue to predict high prices for Facebook stock in the future. Morgan Stanley analyst Brian Nowak praised what he called “proactive ‘self-regulation,'” adding that he expects more of such measures from the company in the future.

One of the big changes the company is making is streamlining the privacy settings on its mobile device by putting them all in one place rather than on “nearly 20” different screens. The social media firm is also building a new shortcuts menu to make it easier for users to control their privacy settings. Nowak sees these steps as “improved transparency around data controls,” adding that they’re “somewhat akin to the GDPR efforts in Europe.” In other words, Facebook probably would have had to do something to become compliant with the European Union’s General Data Protection Regulation, which goes into effect next month.

Is Facebook losing the trust of users?

Nowak reiterated his Overweight rating and $230 price target on Facebook stock, as he sees no major impact on the company’s ad business or ability to target users with ads, despite the new privacy settings. In fact, he believes users are getting value from the ads they see on the social network and seems to think that consumers will keep allowing Facebook to share their personal data as widely as ever.

Deutsche Bank analyst Lloyd Walmsley also maintained his Buy rating and $235 price target on Facebook stock following the announcement about the upcoming privacy settings. However, he also raised a bigger issue than regulatory risk, which is the one thing most analysts agree that there is little real risk of. He noted that the bigger concern is that users will stop trusting the company. In fact, he sees the possibility that greater transparency around how personal data is used by advertisers will be a bad thing in this case.

At the time he wrote his report, Walmsley said he expected “a more limited reaction” in Facebook stock from any additional “incendiary headlines” because the multiple had compressed to 17 times GAAP earnings consensus for 2019. However, today it becomes apparent that further downside risk in Facebook stock is still a reality.

Facebook stock plunged another 2% in intraday trading today, falling as low as $156.03 per share.