Facebook Inc Is Being Hurt by a Political Witch Hunt

Facebook stock - Facebook Inc Is Being Hurt by a Political Witch Hunt

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I’ve often championed Facebook Inc (NASDAQ:FB) through its many controversies. The last few months, though, were particularly challenging. With accusations screaming about the social media firm facilitating President Donald Trump’s election victory, Facebook stock ran into unusually difficult terrain. It has weathered the storm reasonably well, but will this time be different?

If you’ve been watching the news, you’ll know that the Facebook data scandal, in which the private information of millions of FB users were used inappropriately, is the top story.

At the controversy’s epicenter is Cambridge Analytica, a mysterious political data firm, according to Vanity Fair. Cambridge Analytica harvested information that they purchased from data aggregator Global Science Research.

What’s the big deal for Facebook stock, you might ask? Several organizations buy market research data for multiple reasons. How else are we supposed to receive voter information reports that confirm our biases but are totally “fake news?”

It’s a complicated story, but Global Science Research essentially obtained private user information under a false premise. Apparently, that’s not against Facebook policy. What is against policy is sending that information to a pro-Trump organization committed to swaying the election.

The Facebook data scandal takes an even deeper, and more problematic, twist. Cambridge Analytica CEO Alexander Nix told the British Parliament that he had never met with Russian officials. However, insiders from SCL Group, which owns Cambridge Analytica, stated that Nix had at least three meetings with NK Lukoil PAO (ADR) (OTCMKTS:LUKOY) executives.

Lukoil is, of course, a major Russian energy company. Facebook wrestling with the Russia issue isn’t great for optics, and therefore, FB stock tanked.

But if you think I’m giving up on Facebook stock, you might be surprised.

The Facebook Data Scandal is All About Trump, and Nothing Else

When I watched CNBC on Monday morning, producers seemingly dedicated the entire broadcast to the Facebook data scandal. I get that it’s big news. I also understand that traders felt panicky, and therefore, punished FB stock to the tune of nearly -7%.

We can argue all day about whether it deserves that selloff magnitude. What I will say is that the Facebook data scandal is a political opportunity.

For some time now, Democratic leaders and organizations have been pushing the Russia story. “Teflon Don” never caved to the pressure, inciting more liberal anger. Finally, the Facebook data scandal provides something politically substantive. However, labeling this incident as a “breach of trust” or some other click-baity tagline is a little much.

I’m reminded about the ongoing gun control debates. Whenever a tragic mass shooting occurs, the AR15 rifle is public enemy number one. Not because it’s responsible for most gun-related deaths, but because it’s a cheap, easy way to score political points. The extremely liberal New York Times conceded that “big, scary military rifles don’t kill the vast majority of the 11,000 Americans murdered with guns each year. Little handguns do.”

I’m not saying that the Facebook data scandal isn’t a big deal, because it is. Furthermore, I’m not suggesting that Facebook stock will brush aside inevitable volatility. It’s going to get ugly in the nearer-term.

My argument is separate facts from politically tinged conjecture. Collecting user information for political purposes isn’t against Facebook policy. Lying about the reasons you’re collecting information is also not illegal. Sending that information to another company, though, is illegal.

Based on the available facts, we’re talking about a disclosure violation: Global Science Research sent user data information to Cambridge Analytics without disclosing this action. We need more evidence before we crucify FB stock.

Irresponsible Editorials May Hurt Facebook stock

Open up Alphabet Inc’s (NASDAQ:GOOG, NASDAQ:GOOGL) Google search engine and look at the newsreel. Invariably, you’ll find stories juxtaposing the Facebook data scandal with CEO Mark Zuckerberg selling off several FB shares.

It’s fair to report this, of course. But because we’re not getting balanced perspectives, the framing implies that Zuckerberg engaged in insider trading. Other headlines criticize Zuckerberg’s silence on the Facebook data scandal. Again, I find the general editorial attitude too click-baity and sensationalist.

On the other hand, the media has to run sensationalist arguments because the political furor against President Trump demands it. Like gun control, the Facebook data scandal is an easy way to score political points.

But let’s be real: collecting data was never against Facebook policy. Collecting data for the wrong candidate apparently is.

If you want to see a real scandal, look at Equifax Inc. (NYSE:EFX). On so many levels, the Equifax security breach was the biggest violation of the public trust. Yet I also knew at the time that the American public would forgive and forget this disaster, in part because we believe in second chances, but also because we’re dumb.

EFX shares started recovering almost as soon as its scandal broke. I’m more than confident that Facebook stock will receive the same courtesy.

As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.

Article printed from InvestorPlace Media, https://investorplace.com/2018/03/facebook-inc-fb-stock-hurt-political-witch-hunt/.

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