Facebook Inc. Chief Executive Mark Zuckerberg saw his net worth decline by about $5 billion Monday, but it could have been worse.
Ahead of Facebook’s worst one-day decline since 2012, prompted by news that data affecting 51.3 million members was improperly shared with a political consulting firm, Zuckerberg had been busy selling stock. So far this year, he has sold nearly 5 million shares.
Disposing of those Facebook FB, -6.77% shares before Monday ended up saving about $40 million, according to Securities and Exchange Commission filings and some arithmetic by MarketWatch. At Monday’s close, the 4.9 million shares Zuckerberg has sold this year under a predetermined plan would be worth $855 million. Zuckerberg made about $900 million selling those shares, according to calculations using average weighted prices reported to the Securities and Exchange Commission.
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Facebook spokeswoman Vanessa Chan said in an email that the stock sales are intended to fund the Chan-Zuckerberg Initiative, the philanthropic investment organization the Facebook founder set up with his wife in 2015. In an SEC filing in September, Zuckerberg said that he plans to sell at least $6 billion in Facebook stock over the next 18 months to fund the organization’s efforts.
Last year, Facebook abandoned its plan to create a new class of nonvoting shares that was concocted to allow Zuckerberg to retain voting control of the company. Zuckerberg said at the time that the stock’s gains over the past couple of years would allow him to retain control of the enterprise and still sell enough stock to fund his philanthropy without the new stock structure.
See also: Facebook sheds nearly $40 billion of market cap as investors flee stock
“Over the past year and a half, Facebook’s business has performed well and the value of our stock has grown to the point that I can fully fund our philanthropy and retain voting control of Facebook for 20 years or more,” Zuckerberg wrote at the time. “As a result, I’ve asked our board to withdraw the proposal to reclassify our stock — and the board has agreed.”
Facebook spokeswoman Chan declined to comment when asked whether the lower stock price would again change Zuckerberg’s plans to retain control of the company while funding his initiative.
Facebook stock is down 1.8% this year, as the S&P 500 index SPX, -1.42% has gained 2.9%.
Facebook is facing increased scrutiny after a pair of reports documented the use of Facebook data by Cambridge Analytica.
On Monday, Facebook's stock price fell off a cliff, plummeting by nearly 7% in the first few hours of trading. The dip nearly erased all gains for the tech giant since February and represent the worst 1-day price drop for the company since September 24, 2012, when Barron's priced the stock at well below its value at the time. So, why the sudden sell-off now? Here's what you need to know.
The Price Drop Comes After Facebook Admitted That Cambridge Analytica Was Able To Harvest Its Data
The stock drop comes just two days after The New York Times and the Observer reported that Cambridge Analytica, founded by former Trump staffer Steve Bannon and Republican megadonor Robert Mercer, harvested data from over 50 million Facebook profiles without users' permission to create targetable personality profiles for campaign advertisements used in the 2016 US presidential election.
Facebook claims that the data was passed to Cambridge Analytica by a Russian-American researcher, who said he was using it for academic purposes.
The Reports Raised Criminal And Security Concerns For Facebook
The reports raised serious concerns about the company's security practices and suggested that Facebook representatives may have lied under oath.
Facebook has repeatedly told British and American politicians under oath that Cambridge Analytica did not have access to Facebook user data, but whistleblower Christopher Wylie showed The Times and Observer a letter dated August 2016 asking him to destroy user data collected by his company, suggesting that Facebook was aware of the data vulnerability when it told legislators that Cambridge Analytica didn't have its data.
The letter only came after an article in The Guardian reported that Cambridge Analytica had obtained Facebook user data that it potentially used to sway the Brexit vote and in the Ted Cruz campaign.
Facebook did not follow up with its initial request that the data be destroyed, simply asking Wiley to mark a checkbox to confirm that the data was erased. The academic who collected the data says users were simply told the data was being collected for academic purposes. Facebook called the data transfer to Cambridge Analytica "a serious abuse of our rules," but did not explain what would prevent the same thing happening in the future.
Politicians Are Now Calling For Greater Regulation Of The Company
Adding to the bad press, politicians from Britain and the US are now calling for hearings into Facebook's privacy practices and calling for greater regulation of the company.
Damian Collins, Conservative chair of the UK Digital, Culture, Media and Sports Committee told LBC radio that "the time has now come for us to look at giving more powers to the information commission in the UK."
Antonio Tajani, European Parliament President, tweeted Monday that the EU will investigate the data breach, calling it an "unacceptable violation of our citizens' privacy rights."
Republican Senator John Kennedy joined Democratic Senator Amy Klobuchar in asking the Senate Judiciary Committee Chairman to hold a hearing where lawmakers could question Mark Zuckerberg and other top tech chief executives.
In the US, Facebook has already faced increased pressure from lawmakers after it was revealed that Facebook ads played a critical role in Russia's covert manipulation of the 2016 presidential election.
Some Wall Street Analysts Say The Reports Represent Critical Problems With Facebook
Some Wall Street Analysts say the reports pose big problems for Facebook, despite a large majority of them rating the stock a "buy."
Brian Wieser, of Pivotal Research Group, reaffirmed his companies "sell" rating in an email to clients Monday morning, writing "We think this episode is another indication of systemic problems at Facebook. … We see enhanced risks for the company, but no near-term tangible impact on its business."
Peter Stabler of Wells Fargo told Reuters that "This episode appears likely to create another and potentially more serious public relations 'black eye' for the company and could lead to additional regulatory scrutiny."
Other Factors Could Be Contributing
The recently highlighted security concerns might not be the only problem contributing to Facebook's market tumble.
At the end of January, Facebook revealed that for the first time in its history, the number of people who used the site daily in the US and Canda dropped between the third and fourth quarter of 2017. Reportedly, Facebook lost a million daily users. Users also reportedly spent 5% less time on the site.
Facebook's leaders are also sending poor messages on the stock, with Mark Zuckerberg selling around $500 million in shares and Sheryl Sandberg selling over $300 million.
A Market-Wide Slump
Overall, the Dow Jones suffered a 1.2% drop Monday, signaling other losses. The slump is widely attributed to speculation around The Federal Reserve's expected interest rate hike, which may come this week, that will most likely set a more aggressive path for tackling inflation.
If Facebook can't sell information the stock will keep going down: Marc Lasry 5 Hours Ago | 01:21
Facebook shares plummeted Monday, breaking below a key psychological and technical level, and now it faces a bigger test.
The stock fell hard after weekend reports that a political data analytics firm gained access to data on 50 million Facebook users. Analysts said the stock was holding above the lows of its recent trading range but it is testing the 200-day moving average.
Facebook closed at $172.56, just about at the 200-day level of $172.50, after trading below it as low as $170.06. The next level technicians were watching was the recent low of $167.
The 200-day is a widely watched technical indicator, used to follow price trends. It simply represents the average closing price over the past 200 trading days. The stock last closed below the 200-day in January 2017.
"It is gapping down. That's never a good sign for a big growth stock," said Robert Sluymer, technical analyst at Fundstrat. "It's key to see how it reacts to its 200-day and the lows that were in place. ... It's premature to make a statement that there's a top in Facebook. It's just really returning to the low end of a support band it's been in since October."
Sluymer said he's watching the upper $160s range, and if it breaks that it could fall back toward $155. He said the 200-day was important but he's more concerned about the recent lows.
Sluymer said the stock has visited the high $160s a number of times — in October, November and in February, when it hit a low of $167 as the market sold off. If it fails to hold that low end of the range, it risks breaking its uptrend, he said.
Facebook (FB) closed nearly 7% lower Monday as the Trump/Russia scandal continues to hurt the stock, but the charts tell me not to buy the name on this dip.
Action Alerts Plus holding Facebook has suspended U.K.-based Cambridge Analytica amid suggestions over the weekend that the British firm had lied about deleting user data that it had gained through the use of a psychology-test application posted on Facebook.com. Facebook has also suspended Cambridge Analytica parent Strategic Communications Laboratories.
Cambridge Analytica reportedly used the data while doing work in Donald Trump's 2016 presidential campaign, but denies that it misused or even held onto information that it gained from up to 50 million Facebook users.
However, both U.S. and U.K. lawmakers made noise about this over the weekend. Massachusetts Attorney General Maura Healey indicated through online posts that she would investigate. British Parliament member Damian Collins also expressed interest in having Facebook CEO Mark Zuckerberg testify about the possibility that social-media manipulation impacted the 2016 Brexit vote.
Now, Facebook is outperforming the S&P 500 so far this year -- up about 5% vs. 2% for the broad market prior to Monday's pullback -- but badly lags the other FANGs. That might not be a fair comparison given the incredible year that both Netflix (NFLX) (+65%) and Action Alerts Plus holding Amazon (AMZN) -- which is up 34% -- seem to be having. But Facebook lags despite being debt free and boasting the FANGs' best profit margins.
What gives? Do these concerns weigh on the stock's performance?
Zuckerberg has already laid out plans to improve security and slow down the prevalence of "fake news" even if that impacts ad revenue. But believe it or not, that commitment could be putting a dent in investor perception of the firm's direction.
Those who bet against the FANGs tend to get hurt, so I won't be so bold as to short Facebook. But I might just take a pass when it comes to buying Monday's dip. After all, there are only a few things that I see on this chart, and they're mostly negative:
First, the Fibonacci Fan is telling us that the stock will have to reach prices in the $210 area within a couple of weeks for Facebook to regain trend. If it takes longer than that, Facebook will have to attain considerably higher prices on the same trajectory. One can also easily see a flattening of the stock's ascent so far 2018.
But the second thing that I see is a positive for Facebook. The stock has found help at the fan's first line of support twice now.
That said, the negative is that coming off of January's highs and through the lows of the stock market's February correction, Facebook has twice been rejected at a 61.8% retracement of that move.
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