Now that Facebook (NASDAQ:FB) has once again delivered results that exceeded expectations, we can all go back to hating Facebook and loving Facebook stock.
The cloud-based social media conglomerate earned $2.6 billion, 91 cents per share, on revenue of $16.6 billion during the three months ending in June. The stock was due to open for trade this morning at $194. Analysts followed the earnings by raising their price targets on the stock.
Meanwhile, regulators have resumed their death by 1,000 cuts strategy, aimed at killing the communication services Facebook provides. The most important cut came from the European Court of Justice, which ruled that sites using its Software Development Kit or even employing Like buttons to generate traffic can be held liable for privacy violations.
Ad Network Threat and Facebook Stock
The court ruling threatens to make the Facebook Audience Network, launched in April 2014, illegal. FAN delivers ads on third-party Web sites, but it also collects data on use of those Web sites, which allows for better targeting of ads across Facebook’s own services.
If sites have to get permission for ads posted by networks, because of the data being collected through them, it would also threaten the business models of Alphabet (NASDAQ:GOOGL) and competitors like Microsoft’s (NASDAQ:MSFT) audience network. It would also scuttle the plans of AT&T (NYSE:T) and Verizon (NYSE:VZ) to monetize tracking data.
Most concern about the ruling centers on native online services. Twitter (NASDAQ:TWTR) and Pinterest (NASDAQ:PINS) also run ad networks that collect data. At minimum, it could force small third-party sites to ask permission to move data to the networks under Europe’s General Data Privacy Regulation (GDPR).
Facebook general counsel Jack Gilbert told TechCrunch that Facebook would make its Like button compliant with the GDPR. But Europe is, in general, trying to crack down on cookies, requiring that users explicitly give up their privacy rights in exchange for access.
More Looming Regulations and Facebook Stock
Regulators and courts are also going after what people post to Facebook services, what might be called its “editorial.”
A bill from Republican Senator Josh Hawley would ban things like infinite scrolling and autoplay, calling them addictive. Hawley has also introduced legislation that would make the platform liable for everything its users post to it. Rep. Paul Gosar’s “Stop the Censorship Act” would prohibit content moderation, claiming it’s harmful to his party.
Facebook co-founder Chris Hughes is actively working to break Facebook up by spinning-out Instagram and WhatsApp into separate companies.
The number of proposed laws and regulations aimed at Facebook content has produced a cottage industry of critics and monitors. They claim that fines are just noise and that a crackdown on what’s said online and how all data is shared has become necessary.
Most of the anger stems from Facebook’s alleged role in electing Donald Trump, and Republican attempts to protect the President. It’s an environment where the company can’t win because the complainants are working at cross purposes.
The Bottom Line on Facebook Stock
In its earnings release, Facebook said its profits were cut in half from 2018 because “total costs and expenses” rose 66%.
These are not programming costs, creating new services. They’re legal and lobbying costs, protecting existing services. There is no indication these costs are about to fall.
Facebook may well decide, like AT&T a generation ago, that breaking itself up is the only way it can move forward with things like artificial intelligence or fintech innovation.
At some point in the next few years, Facebook is likely to accept separating the cash flow of its services from the potential of its cloud.
Dana Blankenhorn is a financial and technology journalist. He is the author of a new environmental story, Bridget O’Flynn and the Bear , available now at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in MSFT.
