Facebook (NASDAQ:FB) isn’t out of the woods yet when it comes to government investigation. Far from it. Just two months after the company was hit with a record $5 billion fine from the Federal Trade Commission (FTC) over its privacy practices, reports Thursday said the U.S. Department of Justice (DOJ) intends to open an antitrust probe into Facebook. With the FTC still conducting its own antitrust probe –separate from the privacy issue — that means the social media giant is now the subject of two parallel government investigations. Spooked investors heard the news and drove FB stock down 1.47% on Thursday.
With this latest antitrust investigation of Facebook, that would make four probes aimed at the company, including the ongoing investigation by the FTC, a recently announced effort by a group of state attorneys general (led by New York) and the House Judiciary Committee.
This is obviously not great news for the social network and worrying if you own Facebook stock. After the report hitting headlines on Thursday, FB stock extended its losses, chalking up a more than 14% since that record FTC fine in mid July.
What’s DOJ Examining?
The Justice Department hasn’t officially announced anything at this point (it was a busy week there), so the focus of its probe isn’t known for certain. However, sources have told Bloomberg that the DOJ investigation is looking at FB conduct that is separate from what the FTC antitrust case is examining.
The FTC case is focused on acquisitions and Facebook’s habit of buying up tech startups before they can become a threat to its business. While the prominent companies involved there are former competitors Instagram and WhatsApp, Facebook has snapped up in the neighborhood of 90 other companies since 2003. That strategy has obviously paid off for FB stock, but landed it in the FTC’s antitrust crosshairs.
The DOJ’s interest in FB first hit the radar in July, when plans were announced to “scrutinize tech platforms” as part of broad antitrust review. Facebook wasn’t mentioned by name at the time, and under a previous agreement, the DOJ and the FTC have divided responsibility for tech giants, with Facebook falling under the FTC’s jurisdiction. The FTC also had oversight of Amazon (NASDAQ:AMZN), while the DOJ had been responsible for Apple (NASDAQ:AAPL) and Alphabet’s (NASDAQ:GOOGL) Google.
The DOJ’s July announcement said its broader antitrust scrutiny would “look at concerns raised by consumers, businesses and entrepreneurs about search, social media and online retail.”
More Bad News for FB Stock
Year-to-date, Facebook stock has actually performed very well, with 35% growth, almost twice the gain of the S&P 500 index. But that has to be put into some perspective.
Last year was a rough one for the company and its investors. FB stock was hit by the Cambridge Analytica scandal, and after a disastrous Q2 2018 earnings report that missed on revenue and showed an alarming slowdown in user growth, Facebook stock tanked, losing 20%.
After topping $209 last July, FB ended 2018 at just $131.09, so it had plenty of runway for a recovery in 2019. However, problems continue to plague the company this year. Everything from service outages to shareholder revolts to the prospect of hefty fines over privacy issues from the European Union to that bruising $5 billion FTC fine — FB stock dropped 11% in the week after that was announced…
While we wait to hear specifics of what the DOJ probe will entail, the only certainty at this point is that the roller coaster ride is far from over if you own Facebook stock.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.