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Facebook Stock Takes a Shellacking on Latest Data Sharing Scandal

The real question now is can Facebook stock recover in 2019?

Source: Facebook

Facebook’s (NASDAQ:FB) very bad year only continues to get worse. News broke on Tuesday that FB had given Netflix (NASDAQ:NFLX) and Spotify (NYSE:SPOT) access to users’ private messages. This apparently included privileges to read, write and even delete those messages. The uproar left users seething, tech companies scrambling to distance themselves from the scandal-ridden social media giant and escalated calls for government regulation. Facebook stock dropped over 7% on the day. 

Here’s what you need to know about the latest Facebook scandal.

NYT Report: Facebook Gave Tech Giants Access to User Data

On Dec. 18, The New York Times published a report claiming Facebook has secretly been sharing its users’ data with a who’s who of the tech industry. Documents obtained by the NYT, along with interviews with 50 former employees paint a damning picture. 

Tech giants such as Microsoft (NASDAQ:MSFT) and Amazon (NASDAQ:AMZN) had partnerships with Facebook that gave them access to user data such as contact info for their friends. All told, some 150 companies had special privileges that essentially exempted them from Facebook’s normal privacy rules. Where things got especially ugly, though, was the revelation that Netflix and Spotify actually had full access to users’ private messages.

These revelations sparked concerns that FB had not only crossed a line, but violated an agreement it had signed with the FTC in 2011. That agreement set strict rules that should have prevented FB from sharing private user information without permission.

Yesterday, as the impact of the current mess sank in, Facebook stock dropped 7.25%.

Facebook and Tech Partners Respond 

Yesterday was all about damage control. Netflix said it never checked private messages on Facebook and had never asked for the ability to do so. Spotify claimed it was unaware it even had this privilege. 

Facebook put up a blog post that explained the data sharing was via APIs, used by developers from “integration partners.” These APIs were necessary to ensure seamless sharing within different platforms. For example, sharing a Spotify playlist with Facebook friends. It also allowed users to send a Facebook message from within another app, without leaving it to physically go into Facebook. More limited APIs would also support features such as receiving Facebook notifications while in a web browser, or social media hubs that would consolidate feeds from multiple social media networks. In what could be interpreted as a swipe against the NYT report, in this post, Facebook specifically names The New York Times as one of these integration partners.

FB sums up its defense against accusations:

“To be clear: none of these partnerships or features gave companies access to information without people’s permission, nor did they violate our 2012 settlement with the FTC.”

However, the company does go on to say that most of these features have now been shut down and it is in the process of reviewing its APIs and who has access to them.

The response wasn’t enough to convince investors, who punished Facebook stock.

A Bad Year for FB Gets Worse

In addition to the uproar over the latest data privacy scandal, yesterday FB was dealing with a blast from the past. The Washington D.C. Attorney General’s office announced a lawsuit against FB over the Cambridge Analytica scandal that broke early this year. Facebook has faced scrutiny all year over allegations its platform was used to influence election outcomes. All of these issues over privacy and data sharing have led to repeated calls for Facebook and other social media platforms to face increased government regulation. 

The accumulation of bad news and rising resentment against FB have combined for a tough year for Facebook stock, which has now lost a quarter of its value through 2018. And with this latest data sharing scandal, it doesn’t look as though Facebook is going to be able to start 2019 with a clean slate.

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


Article printed from InvestorPlace Media, https://investorplace.com/2018/12/facebook-stock-takes-a-shellacking-on-latest-data-sharing-scandal/.

©2019 InvestorPlace Media, LLC