Facebook Inc. is heading toward its worst month since May 2013 after an analyst report warned of a temporary pullback in advertising and the FTC confirmed it’s investigating the social network’s privacy practices.
The stock fell 1.4 percent to $157.14 at 2:35 p.m. Monday in New York, bucking the broader positive direction of the markets. Earlier, the shares fell as much as 6.5 percent, erasing about $100 billion in market value in the past 10 days.
Colin Sebastian, an analyst at Robert W. Baird & Co., wrote that the firm’s latest social media survey indicates “some moderation in Facebook usage,” and notes potential for brands and small and medium-sized businesses to “pause some Facebook campaigns until headlines subside.” He lowered his price target to $210 from $225 while saying shares remain attractive for investors with medium to long-term time horizons.
Facebook Chief Executive Officer Mark Zuckerberg is facing one of his worst crises in public confidence yet after reports that Cambridge Analytica, a firm that worked for U.S. President Donald Trump in the 2016 election campaign, improperly obtained and then retained data from 50 million Americans.
The Federal Trade Commission confirmed Monday that it has an open non-public probe into Facebook’s privacy practices, saying it “takes very seriously” recent reports about misuse. Bloomberg reported last week that the FTC is looking into whether Facebook violated terms of a 2011 consent decree over its handing of user data that was transferred to Cambridge Analytica without their knowledge.
Facebook deputy chief privacy officer Rob Sherman said on CNBC that the company remains “strongly committed to protecting people’s information. We appreciate the opportunity to answer questions the FTC may have.”
Later on Monday, Zuckerberg was was invited to testify before the U.S. Senate Judiciary Committee on April 10 as questions pile up over the social network’s data-privacy practices. Facebook said it has received the invitation and is reviewing it. Two other congressional committees also have invited Zuckerberg to testify, and last week he said said he’d agree if he is the right person to appear.
Even if some advertisers temporarily pull back on Facebook spending, Sebastian said he expects the move to be short lived “as there are few channels available that can match Facebook’s return on ad spend.”
And Facebook has other things going for it, such as Instagram, some analysts noted.
“As an offset, Instagram’s growth becomes key,” Bloomberg Intelligence analyst Jitendra Waral wrote in a note. Wells Fargo’s Ken Sena also defended the stock, telling clients in a note that the weakness creates a "buying opportunity."
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Despite the stock drop -- about 16 percent in the past week -- and increase in regulatory scrutiny, Facebook still has 44 buy ratings and only two sell ratings. The shares are trading roughly 30 percent lower than the average Wall Street price target of $221.19.
Facebook is scheduled to report quarterly earnings on May 2, giving it just over a month before facing more questions on calls to discuss the results and analysts will see if they are willing to still hold on to their optimism.
— With assistance by Brandon Kochkodin
Shares of Facebook cratered as much as 6 percent Monday after the Federal Trade Commission announced it is investigating the company's data practices in the wake of the Cambridge Analytica leak of 50 million users' information.
"The FTC takes very seriously recent press reports raising substantial concerns about the privacy practices of Facebook. Today, the FTC is confirming that it has an open non-public investigation into these practices," the agency said in a statement.
The FTC declined to confirm last week that it was investigating Facebook, including whether it violated a consent decree the tech company signed with the agency in 2011.
The decree required that Facebook notify users and receive explicit permission before sharing personal data beyond their specified privacy settings.
A violation of the consent decree could carry a penalty of $40,000 per violation.
"We remain strongly committed to protecting people's information. We appreciate the opportunity to answer questions the FTC may have," Rob Sherman, deputy chief privacy officer for Facebook, said in a statement to CNBC.
Facebook is facing questions over its data handling following reports that research firm Cambridge Analytica improperly gained access to the personal data of more than 50 million Facebook users.
Facebook's stock shed more than 13 percent in the five days of trading following the initial reports.
Monday morning the stock briefly fell into bear market territory, more than 20 percent off its 52-week high, before paring losses. By early afternoon it was down less than 2 percent.
Shares of Facebook Inc. FB, +0.42% rose 0.6% in premarket trade Monday, to bounce slightly after suffering their worst week in six years, after the social media giant took out full-page ads in newspapers over the weekend to apologize for a "breach of trust" in the wake of a data-privacy scandal. The stock had tumbled 13.9% last week, the worst week since it fell 16.5% during the week ending May 25, 2012. The stock's worst week was a 17.6% decline the week ending July 27, 2012, which was about 2 1/2-months after it went public. Separately, the company tried to dispel over the weekend reports that people's call and text history were being logged without permission, by saying, "This is not the case." Facebook said logging call and text history was by users' choice, and was a feature that can be turned off. After last week's selloff, the stock had lost 9.4% over the past three months, but was still up 13.6% over the past 12 months, while the Nasdaq 100 NDX, +3.78% had climbed 21.3% and the S&P 500 SPX, +2.72% had gained 11.5% over the past year.
Read the full story: Stocks trade sharply higher after last week’s rout; trade tensions show signs of cooling
Facebook stock is on the verge of tipping into a bear market — and with regulators in the U.S. and Europe vowing to take take action against the company — investors shouldn’t expect it to recover anytime soon.
On a day in which the Dow Jones industrial average surged around 670 points, Facebook stock briefly plunged as much a 6%, when the Federal Trade Commission said it was investigating the company’s data practices, after social media giant failed to protect the data of as many as 50 million of its users from a political analytics firm.
“The FTC takes very seriously recent press reports raising substantial concerns about the privacy practices of Facebook,” acting director Tom Pahl said in a statement.
Meanwhile, Cook County, Ill. announced it was suing Facebook and the political research firm Cambridge Analytica for violating Illinois fraud laws and Germany’s justice minister Katarina Barley warned that going forward, “we will have to regulate companies like Facebook much more strictly,” Barley told Reuters.
Despite a late rally Monday afternoon, Facebook stock is still down about 13% since the news broke a little more than a week ago and nearly 20% from its all time high of $195.32 a share in February. A 20% decline is generally considered to signal a bear market. Market observers say investors shouldn’t assume a quick bounce back. Scott Devitt, an analyst with the equity research firm Stifel, said that Facebook probably “has a long road ahead of rebuilding credibility with users, society, politicians, and regulators.”
Even if the company is successful at limiting regulations, Stifel predicts the stock will only climb to $168 over the next 12 months, which is still around 15% below where it was in early February.
To be sure, some analysts view this scandal as a potential buying opportunity for the stock, since the company’s financial results continue to look strong. But Argus Research analyst Joseph Bonner, who rates the stock a “buy,” concedes that the scandals “could hurt user growth.”
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Bonner said “a user backlash, if it develops, would be the most serious risk for Facebook.”
On that front, users, celebrities, and Silicon Valley leaders — including Apple CEO Tim Cook — have been critical of Facebook in the days after this scandal broke. And the #DeleteFacebook movement got a huge lift late last week when Tesla and SpaceX chief executive Elon Musk deleted the Facebook pages for both of those companies.
