Facebook Inc | $FB Stock | Data Breach Scandal Sees Facebook Shares Sink Over 5%

data breach

Facebook Inc (NASDAQ: FB)


Facebook shares declined sharply on Monday, causing one of the largest weights in the Nasdaq stock market. The drop was fueled by reports that a political advertising consultancy called Cambridge Analytica that worked with the social media company had illegally retained information of as many as 50 million Facebook users during the 2016 US elections. The consultancy is said to have worked for President Donald Trump’s campaign team and ended up gaining inappropriate access to user data of over 50 million accounts.

The social media giant saw its stock fall 5.1% in the morning session, where it changed hands at $175.59, consequently wiping off $25 billion of its value. Facebook’s plunge appears to have slightly affected other social media stocks that also traded lower. Shares of Twitter, Inc. dropped 0.92% from their $35.16 close last week.  Alphabet, Inc., the parent company of Google, saw its shares fall 2.02% to trade at $1111.40, while shares of Snap, Inc slumped 0.88% to trade at $16.85.

Cambridge Analytica Suspension

Last week, Facebook suspended Cambridge Analytica revealing that it had failed to delete user data that had been forwarded to it by the developers of a popular psychology app. Facebook said that every party that had gotten the user data destroyed it, with the exception of Cambridge Analytica that remained with data of 50 million FB accounts.

The consultancy worked on President Trump’s Facebook ads in the election of 2016. It was initially under the leadership of Steve Bannon (former Trump advisor) and funded by Robert Mercer, a billionaire conservative.  

American and European government officials are now reportedly calling for Mark Zuckerberg, the founder and CEO of Facebook, Inc. to face legislators. The officials believe the Facebook’s latest scandal may have contravened a consent agreement that it signed with a watchdog agency to help deter violation of user privacy.

The social media company could end facing tougher regulation and pay fines worth millions of dollars if it is found guilty. Analysts predict that the stock is likely to face more restrictions regarding how it uses consumer personal data for purposes of advertising.

Looking Ahead

As more scrutiny is applied by regulators on Facebook on its usage of user data for targeting, investors may opt to keep away from its stock for now. Regulators are likely to take a harder line on how data is shared across Facebook’s applications, including the WhatsApp platform.

However, Facebook has not treated the issue as a breach of its data saying in a blog post that “no data was stolen from its systems nor were they hacked.” Cambridge Analytica has also dismissed Facebook’s allegations, saying that it did not use the social media’s data for the 2016 presidential campaign for Donald Trump.

Despite Monday’s fall, Wall Street have not changed their recommendations or price targets for Facebook. Analysts are bullish on the stock with a majority of them recommending the stock higher or “buy” probably because of its excellent performance in the past 12 months.