Facebook, Inc. (NASDAQ:FB) faced a major reckoning over the past week. The social network has wielded tremendous power in the amount of data it collects from its users, with some describing its CEO, Mark Zuckerberg, as one of the world’s most powerful people. That may be true, but even the most powerful people in the world must serve the population.
Last week, it was revealed that Cambridge Analytica, a political data firm working under then-candidate Donald Trump, took advantage of Facebook’s privacy policy to extract intimate data from millions of users. It then used that data to help Trump take the White House.
Tim Cook, CEO of Apple Inc. (NASDAQ:AAPL), summarized the problem succinctly when he said that Facebook’s trove of data “shouldn’t exist.” Those words don’t just condemn FB — they condemn every company that peddles personal information in exchange for ad dollars.
In light of this, the population has galvanized against misuse of data. In addition to a #DeleteFacebook campaign, the FTC confirmed that it is investigating all companies that “fail to honor their privacy promises.”
That casts a wide net, as plenty of companies dabble in data and make their money by offering targeted advertisements. The four companies that follow stand to lose the most.
Stocks to Sell During the Great Unfriending: Alphabet (GOOGL)
Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL) could be described as the current champion of data. It has built its entire business on data, with Google bringing people to the best online content and also bringing advertisers to the right people to target.
Think about the data that Alphabet’s Google collects … it ranges from the things you search for and the websites you visit to your location and the photos you upload. Now think about all of the Google apps you have on your phone. Heck, chances are the operating system on your phone and the web browser on your PC are Google products. Now think about all of the things you’ve searched, websites you’ve visited, places you’ve been and photos you’ve upload that you wouldn’t share with anyone.
That’s a lot of sensitive content. And the Senate is most certainly going to look at how these confidential pieces of data are being used when it hauls in some of the biggest execs in tech, including Google CEO Sundar Pichai.
Prior to the Facebook scandal, Alphabet’s stock was trading as high as $1,175 this month. Today? GOOGL stock is down to $1,005.
Stocks to Sell During the Great Unfriending: Shopify (SHOP)
Shopify Inc (NYSE:SHOP), according to Citron’s Andrew Left, is going to get smacked when Facebook takes away its data “punchbowl.”
“As the scope of Facebook’s severe privacy problem gets exposed, Facebook has no choice but to drastically revamp how it sells data,” said Left. “… data about you and your personal behaviors.”
The crux of the argument is that Shopify panders to “opportunists” who want no more than to get rich and to do so quickly. They can only do this thanks to the data Facebook shares with Shopify. And that data well is likely to run dry once regulation forces Facebook to rethink its practices. That would affect the 600,000 Shopify entrepreneurs whose growth has propped up SHOP stock.
With an already-shaky business built on a system of duping ordinary people through promises of striking it rich from the bedroom, the prospects for Shopify stock become much less desirable as tighter restrictions on FB data squeeze Shopify’s ability to target and sell to customers.
Stocks to Sell During the Great Unfriending: Twitter (TWTR)
Twitter Inc (NYSE:TWTR) has long been known to have a problem with trolls, but it turns out that the troll is Twitter itself. And much like Facebook and Google, Twitter’s CEO Jack Dorsey is being summoned to speak to the Senate’s Judiciary Committee.
That’s a huge problem, as Twitter earned approximately $333.3 million in 2017 through data licensing — an 18% increase year-over-year. And this year, data licensing is expected to grow 20% to $400 million!
In fact, Twitter lists data licensing as a potential risk to earnings should its partners “reduce or discontinue” paying for Twitter’s data.
Meanwhile, Twitter’s ad revenue is falling, going from $2.24 billion in 2016 to $2.1 billion in 2017. And as Twitter itself notes, its ads business is likely to take further hits as video advertisements continue to take a much-larger piece of the pie:
“The decrease in average cost per ad engagement reflects a higher mix of video ad engagements (which have overall lower cost per ad engagement compared to other ad formats) and lower cost per ad engagement across the majority of ad formats compared to the fourth quarter of 2016. The increase in ad engagements was driven by a continuing mix shift toward video ad impressions as well as higher click-through rates.”
Certainly, Twitter’s practice of selling its data whole-hog to anyone with two nickels to rub together will be laid bare on the Senate Judiciary Committee floor for all Senators to poke and prod at, and I doubt they’ll like every lump they find.
Stocks to Sell During the Great Unfriending: Snap (SNAP)
This could be where Snap Inc’s (NYSE:SNAP) decision to brand itself as a camera company comes in handy. SNAP stock has actually declined the least amongst the other Big Tech companies on this list, as Snap Inc doesn’t seem to be quite as thoughtless in the way it treats user data.
However, Snapchat has already managed to fly on the FTC’s radar for charges of data misuse once, and that perception could come back to haunt Snap shares in the near term.
Especially when you consider that Snapchat is filled with a younger set of users, as it has been posited that less than half of Americans ages 12 through 17 use Facebook even once a month. Instead, they’re going to Snapchat. How Snapchat is reconciling its promises of data privacy with its actual handling of that data will be a point of contention as the scandal with Cambridge Analytica plays out.
While Snapchat doesn’t currently allow its users to log into other applications through their Snapchat account (much like how Facebook does and how it got into trouble), Snap is currently building a similar third-party API to the one Cambridge Analytica was able to take advantage of.
And if Snapchat can’t monetize its young audience through data, and it can’t move its Spectacles off the shelf to become a real camera company, then where will the growth come from?
John Kilhefner is the deputy managing editor of InvestorPlace.com. As of this writing, he did not hold a position in any of the aforementioned securities.
