NEW YORK (NYTIMES, BLOOMBERG) - US stocks tumbled on Monday (March 20), dragged down by shares of technology companies, which until recently had propelled the nine-year bull market ever higher. Facebook was at the heart of the sell-off.
Its shares plunged to a four-year low after news emerged over the weekend that a political data firm with links to US President Donald Trump’s 2016 campaign, Cambridge Analytica, had harvested private information from more than 50 million Facebook profiles.
The news reports could open the door to greater government scrutiny and potential regulation of the technology sector. Already, government officials in the United States, Europe and elsewhere have been demanding tougher oversight of the world’s largest tech companies. That, in turn, could erode the industry’s profits and potentially force some companies to adjust their business models.
Facebook stock closed down 6.8 per cent on Monday, wiping nearly US$40 billion off its market value as investors worried that new legislation could damage the company’s advertising business. The slide cost CEO and founder Mark Zuckerberg US$6.06 billion in one day. He holds more than 400 million shares of Facebook stock - still worth about US$68.5 billion.
Facebook’s decline weighed on the other tech giants. Google’s parent company, Alphabet, fell more than 3 per cent. Amazon and Microsoft dropped more than 1.7 per cent. And Apple, the largest American company by market capitalization, sank 1.5 per cent.
The falling tech stocks pulled down the overall market, with the Standard & Poor’s 500 down 1.4 per cent. The tech-heavy Nasdaq composite index fell 1.8 per cent.
The turbulence in the tech industry adds to the recent market turmoil. After more than a year of extraordinary calm in the stock markets, equities have been on a roller coaster since February. The volatility has been driven in large part by fears that inflation might bubble up and prompt the central banks to raise interest rates faster than expected.
Since the start of the current bull market in March 2009, technology companies have delivered total returns – including the appreciation in their share prices and the dividends they have paid – of more than 570 per cent, far outpacing the broader market. In 2009, the tech sector made up 17.5 per cent of the S&P 500. Today, that figure is more than 25 per cent, meaning that a swing in tech stocks has a big effect on the broader market.
A few giant companies have been the driving force behind the rally. Facebook, Amazon, Netflix and Google’s parent company – often referred to in the markets by the shorthand FANG – have become a favorite combination for stock investors.
Politicians on both sides of the Atlantic are now calling on chief executive officer Mark Zuckerberg to appear before lawmakers to explain how Cambridge Analytica was able to harvest the personal data.
Facebook has already testified about how its platform was used by Russian propagandists ahead of the 2016 election, but the company never put Zuckerberg himself in the spotlight with government leaders. The pressure may also foreshadow tougher regulation for the social network.
A top UK lawmaker on Monday backed sweeping new powers for the nation's privacy watchdog.
"The time has now come for us to look at giving more powers to the information commission in the UK," Damian Collins, a Conservative and chair of the UK Digital, Culture, Media and Sports Committee, told LBC radio in an interview on Monday.
Facebook on Friday said that a professor used Facebook's log-in tools to get people to sign up for what he claimed was a personality-analysis app he had designed for academic purposes. To take the quiz, 270,000 people gave the app permission to access data via Facebook on themselves and their friends, exposing a network of 50 million people, according to the New York Times. That kind of access was allowed per Facebook's rules at the time. Afterward, the professor violated Facebook's terms when he passed along that data to Cambridge Analytica.
Facebook found out about the breach in 2015, shut down the professor's access and asked Cambridge Analytica to certify that it had deleted the user data. Yet the social network on Friday suspended Cambridge from its system, explaining that it had learned the information wasn't erased.
Cambridge, originally funded by conservative political donor Robert Mercer, on Saturday denied that it still had access to the user data, and said it was working with Facebook on a solution.
A researcher who worked with the professor on the app is now currently an employee at Facebook, which is reviewing whether he knew about the data leak.
The denials and refutations did little to ease the criticism. Damian Collins, a British lawmaker, said Sunday that Zuckerberg or another senior executive should appear in front of his committee because previous witnesses have avoided difficult questions, creating "a false reassurance that Facebook's stated policies are always robust and effectively policed".
He added in an interview on British radio Monday that Zuckerberg should "stop hiding behind his Facebook page and actually come out and answer questions about his company".
The next few weeks represent a critical time for Facebook to reassure users and regulators about its content standards and platform security, to prevent rules that could impact its main advertising business, according to Daniel Ives, an analyst at GBH Insights.
"Changes to their business model around advertising and news feeds/content could be in store over the next 12 to 18 months," Ives wrote in a note to investors.
Facebook, meanwhile, has sought to explain that the mishandling of user data was out of its hands and doesn't constitute a "breach" - a definition that would require the company to alert users about whether their information was taken, per US Federal Trade Commission rules.
Facebook no longer allows app developers to ask for access to data on users' friends. But the improper handling of the data raises systemic questions about how much companies can be trusted to protect personal information, said Nuala O'Connor, president and CEO of the Center for Democracy & Technology.
"While the misuse of data is not new, what we now see is how seemingly insignificant information about individuals can be used to decide what information they see and influence viewpoints in profound ways," O'Connor said in a statement.
"Communications technologies have become an essential part of our daily lives, but if we are unable to have control of our data, these technologies control us. For our democracy to thrive, this cannot continue."