As Facebook Trouble Mounts, Stock Rises

March 19, 2018 by Douglas A. McIntyre

The news coverage of problems at Facebook Inc. (NASDAQ: FB) has grown rapidly over the past few weeks. However, that has not stopped a run-up in its share price, which has outpaced the S&P 500 and rivals such as Alphabet Inc. (NASDAQ: GOOGL).

In the past month, Facebook shares are over 5% higher. The S&P 500 is up just over 1% and Alphabet just under 3%. Smaller rival Snap Inc. (NYSE: SNAP) has seen its shares fall 10% over the same period.

The rise in Facebook’s shares shows that Wall Street cares more about its dominance among social media and its sharp rise in revenue and earnings. For some investors, the recent negative news is nothing more than a distraction. That may not change if management navigates the problems.

The most recent and serious problem faced by Facebook is, according to Reuters:

Facebook said on Sunday it was conducting a “comprehensive internal and external review” to determine if the personal data of 50 million users that was reported to be misused by a political consultant still existed.

The company said in a statement that it was trying to determine the accuracy of allegations that a researcher gave the firm Cambridge Analytica inappropriately obtained Facebook user data starting in 2014.

In the statement from Paul Grewal, a Facebook vice president and deputy general counsel, the company said it was committed to “vigorously enforcing our policies to protect people’s information.”

Cambridge Analytica may have tried to use the data to manipulate voters in the presidential election. Whether that is true is still not clear. It has, however, caused politicians both inside and outside the United States to call for regulations that could hamstring Facebook’s relationships with some of its users.

While Facebook management may be called before Congress and charged by state authorities with “allowing” outsiders to use its data, the review of Facebook’s actions, or lack of action, may blow over. Yet, Facebook may have to change the rules about how outsiders can use its data and set up a better policing procedure to block use like that of Cambridge Analytica.

Is Facebook in trouble? It is far too early to say that.