Many companies — tech or not — are now in the business of data governance. Last Monday, Capital One (NYSE:COF) stock became just the latest in a string of stocks to take a dive following problems with data governance. The credit-card issuer and bank announced a massive consumer-data breach by a Seattle-based hacker. The hacker was a former Amazon (NASDAQ:AMZN) Web Services employee who exploited a misconfigured firewall. She accessed the personal information of some 100 million U.S. customers and six million Canadian customers. Both credit card applications and bank account numbers were affected.
The hacker, Paige Thompson, was arrested last Monday. Capital One has stated that it’s “unlikely” user information has been disseminated, but the investigation is still underway.
Since the announcement, COF stock price has plunged from $98 to $86.
COF Stock Should Bounce Back
Despite the enormity of the data breach, COF stock may now be a buy. COF now sells for only 73% of book, and a very low trailing P/E ratio of 7.5x. This low valuation makes COF practically a value stock.
Seeing this value opportunity, many analysts are bullish on COF stock. “Short term we think this is a bit of a pride blow and could cause a short-term perception problem, but people will eventually move on,” said Dominick Gabriele, Oppenheimer analyst.
Investors usually overreact to the initial announcement in data breeches, but the stock soon recovers. Facebook (NASDAQ: FB), Equifax (NYSE:EFX), and Google (NASDAQ:GOOGL,NASDAQ:GOOG) are just a few of the stocks that fell sharply on news about data governance problems. Eventually, all saw their share price recover and rebound.
One key takeaway from the COF news is that the stock market will eventually view data governance as a core metric when it comes to evaluating a stock and its price. Data is now an asset. Firms like FB, for example, have clearly demonstrated how they can strategically leverage that data to deliver steady growth in top line revenues step by step in line with increasing web traffic.
Some analysts put the global market for big data at $118 billion by 2022. Each consumer in the U.S. is thought to have left behind a trail of some 5,000 data points ready to be harvested and leveraged for profit. This data all weights up to a petabyte: some 1.5 million CD-roms of information about consumers. Internet firms have amassed so much market data, that they know more about the future buying preferences of U.S. consumers than perhaps even those consumers themselves do.
And the bulk of this data is migrating to the cloud, meaning offsite data storage and management by an external third party vendor. So if a company can’t keep this data secure, what will that say to investors?
The Future is Data
Firms like Google, who offer Google Cloud Services (GCS), Amazon and their Amazon Web Services (AWS), and Microsoft (NASDAQ:MSFT) Azure are the giant players in the data market. They think that data will likely become their core business in the decade ahead.
Interestingly enough, the Chairman and CEO of Capital One, Richard Fairbank, has been one of the most enthusiastic evangelists for cloud computing and he wants the stock market to know it. COF has a long standing and public strategic partnership with AMZN. Amazon Web Services, which like many data service vendors keeps its client list tightly confidential, even was permitted to use Capital One as a case study in their marketing campaigns.
Capital One expects to complete near full migration of their data assets to AWS later in 2020, with “significant cost and efficiency improvement opportunities starting in 2021”, according to Fairbank.
Similarly, most other banks have seen their future will be based on their long term data strategy. Jamie Dimon, the CEO of JP Morgan Chase (NYSE: JPM), one of the biggest investors of FinTech with an annual spend of some $3 billion, has long acknowledged the capabilities of cloud computing. In past earnings calls, he has often affirmed the bank’s commitment to implementing the technology.
The Dangers of Data
Of course, an interesting twist to the COF partnership with AMZN is that it was a former Amazon employee behind the entire security breach announced last Monday at the credit card giant. So should investors be more worried about Amazon’s security than Capital One’s? I’m not sure, but that’s likely to become very important in the next few years.
In short, data may emerge as a company’s most valuable asset in the new world order. But at the same time, betting the future of a company on a room of data servers and a small team of programmers is not without risk.
As of writing, Theodore Kim does not hold any position in any of the above-mentioned stocks.
