Among companies that have suffered PR controversies over the trailing year, nobody was in the spotlight as much as Facebook (NASDAQ:FB). Initially, the social-media giant courted criticism for allowing a politically biased research firm to allegedly assist Donald Trump’s successful electoral campaign for president. Later, Facebook stock tanked after investors panicked over its “disappointing” second-quarter earnings result.
But the hits didn’t stop there. Pouring gasoline on a dumpster fire, The New York Times reported that Facebook allowed companies to access users’ private messages. According to the damning expose, these corporate partners included big names, like Netflix (NASDAQ:NFLX) and Spotify (NYSE:SPOT). Not surprisingly, FB stock ended 2018 in the doldrums.
Fundamentally, though, Facebook offers strength in multiple lucrative sectors. That’s one of the catalysts that have spiked Facebook stock 27% this year. Offering better advertisement reach and overall stability than either Snap (NYSE:SNAP) or Twitter (NYSE:TWTR), FB stock finally found its groove. However, its “clear history” function casts a dark cloud.
Will FB Stock Clear History, and Itself from Contention?
If you’re deeply vested in FB stock, you may have received a sudden chill in your bones. On Tuesday, the company announced that it will launch its “clear history” feature sometime this year.
With the function, users will have access to the apps and websites they’ve engaged through the FB platform. In turn, they can delete this information from their accounts. Even more, the social-media firm will also introduce an update to prevent Facebook from collecting user data moving forward.
Obviously, this creates massive challenges for Facebook stock. Since you can access FB’s core product without paying a fee, management must seek revenues elsewhere. Therefore, ad sales are pivotal for the organization’s aforementioned stability and successes.
But don’t panic based on my assessment. Instead, you can freak out over CFO David Wehner’s words. He bluntly admitted the self-imposed challenges. He stated that the Facebook clear history feature is “going to give us some headwinds in terms of being able to target as effectively as before.”
No kidding. According to a Pew Research Center study, 86% of internet users took steps to disguise or remove their digital footprints. That’s a whopping share of the ad-targeted consumer base. Moreover, millennials take greater steps to control privacy.
With the Facebook clear history function, management essentially gives away free money from a captive audience.
There’s a reason why NFL stadiums charge astronomical prices at the concession stand: you have no alternative. Inexplicably, Facebook is giving up that advantage, levering unnecessary headwinds against FB stock.
Why You Shouldn’t Panic-Sell Facebook Stock
Don’t forget that these troubling surveys — at least from the perspective of FB stock — are not conclusive. A few years back, a Gallup poll declared that millennials aren’t terribly worried about data security.
Although this poll came out before the Cambridge Analytica fiasco, I give their analysis more weight. That’s because despite the #DeleteFacebook campaign, few actually went through with it. Sure, several users took a break, while others deleted the app from their phone.
But a permanent separation? If the supposed anger at Facebook had substance, it didn’t show up in recent earnings reports.
Most analysts and investors likely view the Facebook clear history function as a negative for understandable reasons. However, I can make a case that it benefits Facebook stock.
How so? You must remember that due to its massive size, FB’s user-growth potential has reached maturity. Moving forward, the emphasis isn’t on outright gains, but cultivating the relationship. Therefore, the company’s marketing machinery must transition from attraction to retention.
As I stated previously, management has been fortunate: people haven’t left in droves as they initially threatened. However, the organization can’t take this dynamic for granted.
To alleviate that pressure, Facebook is giving internet users what they want. The same Pew study indicated that 91% of adults felt a loss of control over their digital privacy rights. By returning that highly demanded control, management scored a PR victory for once.
Bottom line: don’t panic on FB stock. The clear history situation is just a necessary step in the social-media giant’s journey.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.
