The revelation that data obtained from Facebook, Inc. (NASDAQ: FB) likely helped Donald Trump become president creates real, meaningful risk for Facebook stock.
Many hundreds of millions of people around the world, especially liberal people under 40 years old, have come to the conclusion that Trump is a tremendous danger to their rights and to all that is good about Western civilization.
Moreover, they are revolted by the president’s ideas and conduct, and that revulsion can easily spread to anyone or anything who helped him win the 2016 election.
For example, before Russia was identified by the U.S. government and Hillary Clinton as a key factor in Trump’s win, most young liberals were apathetic toward Russia and its president, Vladimir Putin. Now they view Russia and Putin as horrible, evil forces that are the worst enemies of the U.S.
Of course, FB is in a different category than Russia and Putin, since there is no evidence that the social media giant meant to help Trump win.
Still, many liberals around the world may be disgusted by what they will likely see as the company’s carelessness and its role as an unwitting accomplice in helping to bring the hated Trump to power. Allegations that the company’s conduct violated a consent decree also won’t help FB or Facebook stock.
Although it was previously revealed that Russian agents placed ads on Facebook in an effort to help Trump, blame for those ads was placed more on Russia than on FB, while Facebook is shouldering the blame for the latest revelation largely on its own.
Of course, in addition to the anger triggered over the role that Facebook played in electing Trump, there will be worries about the security of the platform in the wake of the latest revelation.
The New York Times, for example, pointed out “that many others could have similarly misused Facebook data.” And the newspaper quoted a Twitter Inc (NYSE: TWTR) user named Evan Baily, who wrote that “Facebook’s platform must protect us from predatory behavior, or we can’t and shouldn’t trust the platform.”
The revelation about FB comes at a time when it is facing a seemingly viable challenge for the first time in years. Specifically, Snapchat from Snap Inc (NYSE: SNAP) has been attracting a significant number of young people, CNBC quoted research firm eMarketer as saying last month.
“EMarketer said it expects Facebook to lose 2 million users under the age of 25 this year and that Snapchat will pick up 1.9 million users within that age bracket,” CNBC reported.
Facebook’s new scandal could exacerbate its losses among young people, and those losses could easily spread to older people, especially liberals between the ages of 25 and 40.
Meanwhile, Twitter’s growth is also accelerating (ironically probably partly because the president’s extensive use of the platform has given it tens of billions of dollars of free advertising). Consequently, Twitter could take away some of Facebook’s audience, hurting the social media giant’s results and causing Facebook stock to drop significantly.
Finally, Facebook could, in the not-too-distant future, see increasing competition from foreign websites. As I’ve written in the past, Alibaba Group Holding Ltd (NYSE: BABA) could buy Weibo Corp (ADR) (NASDAQ: WB) and bring it to the U.S. Other foreign social media platforms could also be brought to America, exacerbating Facebook’s competition.
Bottom Line on Facebook Stock
Finally, Facebook stock, trading at a price-to-earnings ratio of around 33 and a price-to-sales ratio of nearly 13, is not exactly cheap.
Given Facebook’s many challenges and increasing competition, investors should dump Facebook stock.
As of this writing, Larry Ramer owned shares of WB stock.