We expect Facebook will answer the call for more privacy safeguards

We expect Facebook will answer the call for more privacy safeguards

Over the weekend, the Sunday morning political talk shows put Facebook (FB) the spotlight following renewed privacy concerns and that is hitting FB shares this morning.

This privacy concern renewal stems from news that data firm Cambridge Analytica came to access information about potentially tens of millions of users without their explicit permission to build “a system to target individual U.S. voters with political advertisements.” As has become clear, Cambridge Analytica worked on Donald Trump’s 2016 presidential campaign and “and has come under scrutiny in special counsel Robert Mueller’s investigation into whether Trump associates colluded with Russia’s efforts to interfere in the U.S. election.” It’s been estimated that Cambridge improperly accessed private information from more than 50 million Facebook users, and was not deleted despite Facebook’s demands beginning in 2015. Per Facebook, it learned this month the data had by Cambridge was not destroyed.

This morning it is being reported that Republican Senator John Kennedy and Democratic Senator Amy Klobuchar are calling Facebook CEO Mark Zuckerberg to testify before Congress. Those two join a growing list of people calling for Facebook to explain how the data was used, what policies were violated, what legal implications are to be had, and why Facebook didn’t disclose what happened until late last week despite knowing of the abuse in 2015.

Clearly, there will be a number of questions to answer, and we see this as a renewed call for Facebook to mature as a company and instill better safeguards for user privacy. While its possible these headlines could lead to some short-term disruption in user activity and advertising spend, we see them as somewhat in the rearview mirror with Facebook already refocusing on quality user engagement. We’ll continue to monitor the developments, but our suspicion is Facebook has already been laying the groundwork to address such privacy concerns.

At the same time, the company continues to focus on not only video advertising, but also expanding its Watch tab, which should help drive both user engagement and advertising revenue. The same can be said about its move to broadcast live sporting events as well as develop its own proprietary content that would position the shares inside our Content is King investing theme. As we have said many times in the past, the only thing better than having one of our thematic tailwinds pushing on a company’s business is having two or more.

  • Our long-term price target for Facebook (FB) shares remains $225.

About the Author

Chris Versace, Chief Investment Officer
I'm the Chief Investment Officer of Tematica Research and editor of Tematica Investing newsletter. All of that capitalizes on my near 20 years in the investment industry, nearly all of it breaking down industries and recommending stocks. In that time, I've been ranked an All Star Analyst by Zacks Investment Research and my efforts in analyzing industries, companies and equities have been recognized by both Institutional Investor and Thomson Reuters’ StarMine Monitor. In my travels, I've covered cyclicals, tech and more, which gives me a different vantage point, one that uses not only an ecosystem or food chain perspective, but one that also examines demographics, economics, psychographics and more when formulating my investment views. The question I most often get is "Are you related to…."

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