Four reasons this latest data problem is indeed a problem for Facebook

I’m sitting here typing this from my daughter Amaris‘ hospital room on my old laptop with a busted screen because I don’t want to bring my newer laptop to a hospital and get germs on it. Amaris has been in the hospital for a week now and we had just gotten her out of a shorter stay at the hospital three weeks ago. Bear with me as I missed last week’s Revolution Investing newsletter.

Facebook is down 7% this week because the company’s got a privacy problem yet again. I’ve owned Facebook since I made it a “Top 3 Largest position” when I’d bought a bunch of common stock and even some long-dated call options back after its post-IPO crash when the stock was around $20 a share. Long-time subscribers know that I’ve trimmed some Facebook shares, as recently as last month, but have also opportunistically bought more shares (or call options) when the stock has sold off.

Alas, that is not the case today. I’m as concerned about how Facebook has handled the unauthorized use data that it freely shared with outside firms as I am that the outside firms have use of unauthorized data to which they can offer access to yet other outside firms. Data about individual Facebook users and their friends. I think there’s some bearish ramifications from this data problem and they’re not going away for a few quarters, meaning there could be some overhang

Let’s take a look at the facts that we know so far and how they might impact the stock’s performance.

1. Facebook’s already changed the rules and has (hopefully?) cracked down on outside access to user data. This “breach” (Facebook says it ain’t no breach!) was (is) about Facebook data that’s three or four years old. That’s still no excuse and it still calls into question what other questionable privacy practices Facebook has in its rules about your data.
2. Facebook is trying to pretend they’re shocked at this “breach” now that it’s in the news even though they apparently have known about it for years. I can’t hardly believe they think it was smart to revoke the whistleblower’s access to his Facebook account after this story hit over the weekend. Out of touch!
3. Facebook didn’t bother to notify users of this “breach” (It ain’t no breach, Facebook says, appallingly). That is going to be a problem and there will be fines from the EU and from states in the US. I’d guess Facebook will have to write a check for a few hundred million here and there to settle this at some point in the next few quarters. That’s not peanuts, but it would be a one time charge and would probably be mean a lower multiple for a while for the stock.
4. Facebook, Google, Twitter and other social networks are already under fire for their roles in spreading propaganda and for privacy issues and this is going to really get political in a hurry. The Republican side of the Republican Democrat Regime are going to gain big political points by pointing out how Democrat-leaning these companies are. The Democrat side of the RDR will gain political points by pointing out how these breaches were done by Republican political firms affiliated with Trump. There’s already a bipartisan calling for hearings naming Facebook, Google and Twitter. The most likely outcome of this is going to be some sort of new government organization to “oversee” privacy and propaganda on these platforms. Oversight being a form of propaganda itself, you know I don’t think this is going to help anything. But it will be expensive to comply. And the headline risks from these hearings will be high.

So the upshot is that I do think Facebook could underperform for a while. I don’t think we’ll even remember this incident in five years though. Since I have trimmed some Facebook twice in the last few months, I’m probably just going to sit tight for now. I might end up nibbling some more Facebook shares if it really takes a hit from here, but for now, patience.