When it comes to Facebook (NASDAQ:FB) trust is the one thing that’s in short supply. You can have all the money in the world, and Mark Zuckerberg pretty much does have that, but if you don’t have trust, your business can’t make sustained progress. That’s as simple a reason as I need to keep laying off Facebook stock.
I’m not just referring to regulators’ lack of trust in the company, though this was indeed evident when Congress hammered Libra head David Marcus recently.
No, I’m referring to a lingering sense of distrust on the part of Facebook’s user base, which may be justifiable and is a sufficient reason to put me in a wait-and-see mode concerning FB stock.
Pushback Taking a Toll on FB Stock
The NASDAQ is down overall, so I won’t blame the decline in the Facebook stock price entirely on the company’s deteriorating reputation. Still, I get the impression that the increased scrutiny following the Libra launch announcement is weighing on the share price and will continue to put pressure on Facebook stock until Mark Zuckerberg tackles the trust issue head-on.
For Zuckerberg to announce the Libra project when the company is still struggling to regain its users’ loyalty after a well-publicized data-leakage scandal is, in my estimation, poor timing.
Now, Facebook’s not only the target of the U.S. Congress, but the President and even the Federal Reserve Chairman have expressed their misgivings, with Jerome Powell raising the specter of Mafia-like machinations:
Libra raises many serious concerns regarding privacy, money laundering, consumer protection and financial stability. These are concerns that should be thoroughly and publicly addressed before proceeding.
For his part, President Trump has been characteristically unreserved in his critique, asserting that Libra “will have little standing or dependability” and “if Facebook and other companies want to become a bank, they must seek a new Banking Charter and become subject to all Banking Regulations.”
No Dip for Me, Thank You
Are the aspersions lobbed by Congress, the Fed Chair, and the President fair? In lieu of answering that, I’ll retort with a better question: Does it matter whether it’s fair or not? Perception is reality in the sphere of investing, and as long as the overarching sentiment is that young Zuck and Company are not to be trusted, I won’t be accumulating Facebook stock shares at any price, even if it’s somewhat lower than its peak in the $204 area.
The data appears to back me up on this one, as a poll of 352 consumers conducted by Investor’s Business Daily revealed that folks haven’t forgiven or forgotten Facebook’s unwillingness to properly manage users’ data. Evidently, acquiescing to pay the Federal Trade Commission a $5 billion fine wasn’t enough to sweep the issue under the rug.
IDB poll results found that 70% of the respondents “expressed pessimism the settlement prevents the misuse of personal information by the company in the future.”
An earlier poll, also conducted by IDB, revealed the startling statistic that “one in 10 Facebook users” have quit the social network entirely, citing “concerns over privacy and protection of their data.”
Apparently, they’ve got us all addicted to the point that we’ll keep coming back to check our Facebook accounts even after they misuse our private data.
I assure you, the investor, that people will only tolerate so much, and the Facebook stock price could go much lower if Zuckerberg doesn’t make real, sustained progress in assuring the social network’s users that he and his company are worthy of their patronage.
The Takeaway on Facebook Stock
I’m not a Facebook hater by any means, and I’m happy to let the free market decide whether the company should sink or swim. When it comes to actually buying FB stock shares amid these persistent and widespread trust-centered concerns, however, I’m not prepared to give Zuck another chance until he’s earned it.
As of this writing, David Moadel did not hold a position in any of the aforementioned securities.
