One would think, given the amount of regulatory scrutiny Facebook (NASDAQ:FB) faced of late, CEO Mark Zuckerberg would lay low for a while even if only to protect Facebook stock.
One would be wrong in making such an assumption, however. Even as antitrust investigations of it and Apple (NASDAQ:AAPL) get going, Facebook is poking the proverbial bear. This only a few weeks after European regulators forced the social networking giant to revise its privacy policy. Last week the company announced it was planning becoming part of a relatively exclusive cryptocurrency network known as Libra.
Visa (NYSE:V) and Uber Technologies (NYSE:UBER) are founding members of the blockchain-powered crypto network, though it’s difficult to suggest Facebook isn’t best positioned to make Libra a mainstream alternative to actual government-issued currency.
Facebook Stock and Regulators
If all goes as planned, Facebook’s WhatsApp, Messenger as well as Facebook itself will be able to facilitate Libra-based transactions by the first half of next year.
Facebook’s blockchain Vice President David Marcus explained: “If more commerce happens, then more small businesses will sell more on and off platform, and they’ll want to buy more ads on the platform so it will be good for our ads business.”
He’s not wrong, but, any alternative to the use of government-issued money as a means of conveying value raises eyebrows in Washington D.C. It took Democratic Representative Maxine Waters, chair of the House Financial Services Committee, just hours to request Facebook suspend its development of Libra. Hearings on the matter are already in the works.
It won’t be the first time Facebook executives have been stared down by federal lawmakers. In April of last year, a Senate hearing tried to dissect the company’s privacy policies. In May of last year, Zuckerberg faced a similar grilling from the European Union’ parliament, a prelude to tougher privacy rules now known as General Data Protection Regulation, or GDPR for short.
He’s likely to get an earful again, if the Federal Trade Commission’s probing finds anything suspicious.
Facebook Stock and Perception
In most regards, Facebook’s aggressive, invasive approach has been defensible. No illegal acts have been committed, even if only because most current laws never envisioned a social networking platform, nor a website with this level of influence on the global culture. More than 1.5 billion people log into Facebook every day, and that figure continues to grow.
And they’re embracing a huge chunk of the commentary and ads they’re getting, legitimate or not.
It’s been a reputational problem for Facebook since well before the Cambridge Analytica scandal, though there’s little doubt the Cambridge Analytica debacle cemented users’ concerns into the cultural ethos of Facebook. While most of them still utilize the website, more than 60% of Americans don’t trust the social networking platform with the personal data they’re still offering Facebook.
The company’s reputation isn’t faring much better overseas.
And now, Facebook is willing to play the part of the big bad businessman again by tiptoeing into a venture that offers a modest amount of fiscal upside, if any at all.
Perception matters for Facebook stock. Sometimes it can take years for a dented reputation to make a clear impact, but it can take a toll. Consumers are watching, and remembering, even if they don’t realize they’re remembering.
Each time Mark Zuckerberg trades in his usual hooded sweatshirt for a coat and tie for another round of lawmakers’ questions, it looks and feels like a court sentencing, even if that’s not what it is.
Bottom Line for Facebook Stock
FB shares have handily recovered from last year’s selloff, which was partially inspired by new regulatory worries, though assisted by a bearish marketwide tide. Investors broadly think the company will find a way of navigating the stumbling blocks that are sure to pop up in the near and distant future.
Give it time though. Even if Facebook is able to circumvent the challenges Washington D.C. is still brewing up, Zuckerberg is seemingly content to continue making the company a high-profile target. That makes Facebook stock more vulnerable to headlines and legislation than it needs to be.
People may argue that by pushing back and remaining involved, Zuckerberg will be able to help shape the inevitable regulation of major tech companies. Still, diving into cryptocurrency puts a fresh set of eyes on the company, with a decision Facebook didn’t have to make.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can learn more about him at his website jamesbrumley.com, or follow him on Twitter, at @jbrumley.
