More than once over the course of the past few months have I suggested Facebook (NASDAQ:FB) CEO Mark Zuckerberg’s penchant for keeping the company in the regulatory spotlight posed a risk to Facebook stock. He must not have gotten the message.
Last week, Zuckerberg voluntarily sat down with President Trump and a handful of senators. It may or may not have been on the agenda, but inevitably, the matter of it divesting some of its properties came up.
Namely, Senator Josh Hawley suggested the company sell Instagram and Whatsapp as a sign of legitimate interest in protecting user privacy as much as possible.
Zuckerberg “did not think that was a great idea.”
Neither Hawley’s nor Zuckerberg’s stances were surprising or new. But, the presidential pow-wow gave the media another chance to suggest lawmakers take issue with Facebook’s collective dominance. That makes regulation feel more likely, and that in turn puts pressure on Facebook stock.
Back in the Wrong Spotlight
Facebook isn’t alone, for the record. Apple (NASDAQ:AAPL), Amazon.com (NASDAQ:AMZN) and Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) are all being probed for the Department of Justice, prompted by Antitrust concerns.
Facebook’s Zuckerberg, however, seems to have mastered the art of taking a seat in front of government officials that increasingly leave those officials asking questions along the lines of “what are we going to do about Facebook?”
Yes, the April-2018 Congressional hearing regarding the Cambridge Analytica scandal was one such embarrassing event, though hardly the only one. Zuckerberg also found himself facing questions from European Parliament in May of last year. The subject? Data privacy. In October of 2017, lawyers representing Facebook, Google and Twitter (NYSE:TWTR) met with lawmakers on Capitol Hill to discuss their role in meddling with 2016’s elections.
And, there were more (albeit lower-profile) official discussions, most of which resulted in some sort of apology. None of them resulted in the meaningful operational change regulators would have hoped for, though, and more important, none of them prevented Zuckerberg or Facebook’s attorneys from being forced to give sworn testimony at a later date.
It matters. Every time the same company executive is photographed or filmed in front of what looks like a judge and jury, it paints a subconscious picture of guilt.
It also leads would-be regulators to increasingly assume the only way to rein in an unbridled Facebook is by tighter, stricter regulations.
Perception Can Impact Facebook Stock
It’s a difficult idea for investors to digest because it’s a difficult idea to quantify. But, optics matter, even if only on a subconscious level. Indeed, perceptions make an even greater impact on a subconscious level.
Managing those perceptions is critical for companies in a world that’s not nearly as black-and-white as many would like to believe. Just ask Abercrombie & Fitch (NYSE:ANF) CEO Michael Jeffries, who was fired in early 2014 for comments made about overweight and ‘uncool’ kids not being welcome to wear Abercrombie clothing back in 2013.
Granted, Jeffries’ total sum of gaffes made for a solid, collective case for his termination, and Abercrombie was underperforming at the time anyway. But, at least some of the lackluster performance was because Jeffries said offensive and off-putting things on a rather regular basis.
Zuckerberg isn’t Michael Jeffries, to be clear. Zuckerberg, in fact, appears to be at the opposite end of the spectrum, encouraging more regulation of internet-oriented organizations in an environment where no other big tech company seems to want the same. For better or worse, each time Zuckerberg puts himself in the position of a courtroom defendant, he’s taking one step closer to that goal.
That’s not bolstering the bullish case for FB stock, as most Facebook shareholders know — even without knowing exactly how — tighter rules will crimp profits.
Bottom Line for Facebook Stock
To be fair, not all of Zuckerberg’s discussions with lawmakers are voluntary. Last week’s was reprising a discussion that appeared to finally be fading. Indeed, it’s surprisingly not been a hot button within the Democratic Party’s recent Presidential debates. A topic, yes, but not a hot button.
Facebook seems to be renewing that discussion on its own though, via Zuckerberg’s meeting with elected officials that was undoubtedly going to broach the topic of a corporate breakup.
Drawing attention to himself and his company poses a risk to Facebook stock. The best place to be right now as far off the radar as possible. Trust me when I say, the government will find you when it thinks it absolutely has to. There’s no need to help the regulation train get moving down its track.
As of this writing, James Brumley held a long position in Alphabet. You can learn more about James at his site, jamesbrumley.com, or follow him on Twitter, at @jbrumley.
