This week marks the one-year anniversary of the Cambridge Analytica scandal. One March 19, 2018, Facebook (NASDAQ:FB) investors slammed the ‘sell’ button on Facebook stock indiscriminately. So indiscriminately in fact, that the scandal led to a broader market selloff, especially in tech stocks.
As long-term investors are wondering whether the social media giant will be able to take the necessary steps to get FB stock its next major leg up, I believe the stock may suffer increased volatility and selling in the near term.
Here’s why:
What Has the Last Year Been Like for FB Stock?
Over the past year, Facebook stock is down almost 10%. The price volatility and decline in Facebook stock overall reflects the company’s continuing difficulties in containing the damage caused by the start of the data breach and privacy scandal.
There has been a shift in the global political environment, and more countries are calling for tougher regulation of the tech giants, including Facebook. As issues have snowballed, the company has also faced an uphill PR battle.
FB has been actively purging fake or troll pages, especially from Russia, over the past few months. Furthermore, CEO Mark Zuckerberg has promised increased transparency for political ads and more control over third-party use of the data.
In early 2019, it felt like Facebook shareholders were becoming cautiously optimistic that FB management would after all get on top of the problems. However, in the last month the tech giant has once again been hit with difficult headlines that are frustrating Wall Street.
Facebook Stock Has Been Collecting Red Flags for the Past Month
February 18 saw the release of a rather heavy-worded U.K. government report that has labeled Facebook executives as “digital gangsters” and called for an urgent investigation into the actions of the company which the report identifies as having “intentionally and knowingly” violated data laws.
On March 8, Senator Elizabeth Warren, one of the Democratic Presidential candidates, said that, “today’s big tech companies have too much power — too much power over our economy, our society, and our democracy.“ She announced a potential regulatory plan to break up these companies, including Facebook and Amazon (NASDAQ:AMZN). While analysts feel that this topic is not going to simply go away but instead will be further discussed in the next two years, investors are wondering what the effect of continued debates would be on the fate of FB stock.
Then on March 13, U.S. newspapers reported that Facebook may face criminal investigations from the Justice Department on how Facebook has shared user data with other major technology companies. If FB’s partnership activity ends up being judged at the standard of criminality, investors may simply throw in the towel for now and decide to watch the latest saga from the sidelines.
That day went from bad to worse for the tech giant when its Facebook, WhatsApp, and Instagram platforms and services suffered long global outages. The next day, the company blamed a “server configuration change” for these outages. Users and investors were not impressed.
As FB investors were hoping there would be no further dark clouds for the week after the service outages, the company announced that Chris Cox, the company’s Chief Product Officer, and Chris Daniels, WhatsApp VP, would be leaving the group. The sudden departure of two top-level executives brought more questions than answers as to what exactly was going on in the highest echelons of management.
On Friday, everyone reeled from the news of the human tragedy of the shootings in Christchurch, New Zealand. As if things weren’t horrific enough, the killer live-streamed the gruesome shooting, and the video immediately became available on Facebook as well as Google’s (NASDAQ:GOOG,NASDAQ:GOOGL) YouTube and Twitter (NASDAQ:TWTR). This horrific event rekindled the debate on how these social media platforms should handle disturbing content.
In short, around the first anniversary of the Cambridge Analytica scandal, the media is once again reporting political and PR issues for Facebook. And that is a concerning development for the FB stock price.
Facebook Stock Short-term Technical Analysis
As a result of these recent travails, during the second week of March, FB stock traded differently than most other upbeat tech stocks. It fell from a high of $174.30 to close the week at $165.98. This price drop comes after Facebook stock’s major run-up following the quarterly results in January and the broader tech market strength in 2019 so far.
As long-term investors are wondering whether this decline may offer a viable opportunity to buy the dip, it could be helpful to look at the technical chart of FB stock before making a decision for now.
Facebook stock price has started a new down trend and the short-term technical chart looks weak, pointing to the possibility for more downside around the corner. The momentum indicators are mostly showing that the bull case is weakening. Therefore, my first downside target is $160 and then $149.
FB stock saw $149.02 on March 26, 2018 after the Cambridge Analytica scandal. And a year on, I would not be surprised if the rest of March takes Facebook stock to that level again, especially if there is any general weakness in the tech sector or negative company-specific news.
If you still believe in the bull case for Facebook stock, you might consider waiting for a better time to get long, such as the low-$150’s or even high-$140’s.
The Bottom Line on Facebook Stock
Stocks suffer during times of uncertainty and the damaging headlines about the legal, political, managerial and technical issues surrounding Facebook offer plenty of questions. Could it be that the anniversary of the selling on March 19, 2018 may turn out to be another bad day for the stock price? All it may take is a piece of less-than-great news.
If you are considering of adding FB stock to your portfolio, you may want to wait for the release of the next quarterly statement on April 24 to re-evaluate the balance sheet and the effect of the laundry list of issues on the earnings.
As of this writing, Tezcan Gecgil did not hold a position in any of the aforementioned securities.
