We’ve been here before. Facebook (NASDAQ:FB) is garnering negative headlines, investors are getting nervous and FB stock looks risky. I expect this time around will play out as it has before.
That’s perhaps a bit too flippant. Facebook admittedly is in the unenviable position of taking heat from both sides of the U.S. political spectrum. Regulators both here and abroad do have the power to dent the company’s business.
But from a broad standpoint, I don’t believe the risk to the company, or to the stock, is what skeptics and bears would have you believe. And the fact that Facebook is such a lightning rod is a testament to just how broad the company’s worldwide reach truly is.
Past scandals have faded, and each time FB stock has marched to new highs. I don’t expect this time will be different.
Facebook Is Angering Both Sides
At the moment, Facebook is taking heat from some corners for not censoring or labeling messages from President Donald Trump. Fellow social media platform Twitter (NYSE:TWTR) has fact-checked some of the president’s tweets, drawing the ire of Trump supporters and applause from the other side of the political spectrum.
Facebook’s inaction unsurprisingly has drawn the opposite response. Facebook employees even have staged a virtual walkout.
The president’s loyalists support the platform in this debate. But given Facebook’s California domicile and its role as a key part of Big Tech, that support is hardly unconditional.
Put another way, Facebook could see pressure from both sides. Liberals are angry. Conservatives likely will be again. And it appears this controversy has had an effect on FB stock, which has seen some weakness the last couple of weeks, including a 5% decline during Thursday’s broad market rout.
Facebook in the News
Of course, this is not the first time Facebook has courted controversy. It won’t be the last.
Just last year, Facebook paid a record $5 billion fine to the Federal Trade Commission over privacy valuations. The year before was the Cambridge Analytica scandal, which led to a so-called #DeleteFacebook campaign and tanked FB stock. After that scandal, Facebook ramped its spending, which led to the largest single-day loss of value in the history of the market.
Two years earlier, the company briefly received negative coverage for censoring video of protests of the Dakota Access Pipeline. Facebook said it had done so inadvertently. There have been privacy scandals — including one that led to a 2011 settlement, violations of which led to last year’s fine — and concerns that extremists have used the platform for violence.
Even the company’s initial public offering wasn’t without controversy. Ahead of the IPO, CEO Mark Zuckerberg took flack for wearing a hoodie to a meeting with Wall Street bankers. When FB stock promptly tanked — not long after Zuckerberg paid a stunning $1 billion for Instagram, which had no revenue — many investors saw the company as a fad.
Of course, here we sit. Facebook stock has risen almost sixfold from its IPO price (and more than 1,000% from post-IPO lows). Instagram proved to be, literally, one of the greatest acquisitions in the history of U.S. business.
And Facebook’s reach remains unparalleled. Daily active users in March averaged 1.7 billion. That’s almost one-quarter of the world’s population. DAUs increased 11% year-over-year.
This Time Won’t Be Different for FB Stock
That history suggests that knee-jerk selling of FB on the current controversy is a bad idea. But I can see why investors might believe this time is different.
After all, a presidential election looms. It will be contentious, to say the least. And whichever party is in power in January may have a reason to target Facebook. The company could face antitrust investigations. Section 230 of the 1996 Communication Decency Act could be reviewed. Perhaps this scandal will be enough for one side to finally push through measures that materially affect the business.
I’m skeptical that’s how this will play out. The antitrust case for Facebook seems far less strong than those for Alphabet (NASDAQ:GOOG,NASDAQ:GOOGL) and Amazon (NASDAQ:AMZN). Even after declines on Thursday, investors don’t seem terribly worried about either of those stocks.
Users, as noted, have stuck with Facebook through thick and thin. And looking forward, its Instagram and WhatsApp that are going to drive much of the company’s growth and more of its profits going forward.
There’s too much good news here to focus on what likely will be a short-lived controversy. Investors should have learned that lesson by now.
Matthew McCall left Wall Street to actually help investors — by getting them into the world’s biggest, most revolutionary trends BEFORE anyone else. The power of being “first” gave Matt’s readers the chance to bank +2,438% in Stamps.com (STMP), +1,523% in Ulta Beauty (ULTA) and +1,044% in Tesla (TSLA), just to name a few. Click here to see what Matt has up his sleeve now. Matt does not directly own the aforementioned securities.