Facebook, social media stocks hammered again on fears of more regulation

Facebook lost 2.6 per cent after it said it faced questions from the US Federal Trade Commission about how its users'personal data was mined by a political consultancy hired by Donald Trump's campaign.
Facebook lost 2.6 per cent after it said it faced questions from the US Federal Trade Commission about how its users'personal data was mined by a political consultancy hired by Donald Trump's campaign.PHOTO: AFP

NEW YORK (REUTERS, BLOOMBERG) - Shares of Facebook, Twitter and Snapchat-owner Snap fell further on Tuesday (March 20) as Wall Street fretted over potential regulatory scrutiny that could hobble the business of the social networks.

Facebook lost 2.6 per cent after it said it faced questions from the US Federal Trade Commission about how its users' personal data was mined by a political consultancy hired by Donald Trump's campaign. Facebook shares had already tumbled 6.8 per cent on Monday.

Since revelations on Saturday that a political consulting firm had improperly obtained personal data on 50 million Facebook users, the world's largest social media company has lost US$60 billion of its stock market value.

With concerns that Facebook's handling of users' data would lead to stepped up government regulation, social media rival Twitter slumped 10.4 per cent at US$31.735 in its worst day since July last year.

Snap fell 2.6 per cent to US$16, dipping further below the US$17 price set in its public listing a year ago.

Adding to regulatory jitters, the Israeli newspaper Haaretz reported that Israel Justice Minister Ayelet Shaked accused Twitter of "lack of cooperation," saying terrorist groups were using the site and that Israel was considering a law to combat such activity.

Chief executive Jake Dollarhide said his firm's Twitter stake was in negative territory due to this week's drop. He has no plan to sell because he believes Twitter faces less regulatory risk than Facebook or Snap.

"The average guy or gal uses it as a news feed," Dollarhide said. "I don't know what personal information I've ever shared on Twitter."

New European Union privacy rules that go into effect in May will require letting European users opt out of highly targeted online ads, or face fines of up to 4.0 per cent of annual revenues.

San Francisco-based Baker Avenue Asset Management chief investment strategist King Lip said Facebook and other social media companies face more regulatory risk from European governments than in the United States.

Credit reporting agency Equifax's massive breach of consumers' sensitive financial data disclosed last September led to government probes but no major regulatory or legal changes.

"Equifax's breach was far more egregious than the Facebook issue, and there hasn't been any significant legislation," Lip said. "I think there's going to be a lot of chatter about privacy issues surrounding Facebook, but I don't think any significant legislation is going to be passed."

Facebook has given up about US$47 billion in market capitalization this week. Free fall aside, Wall Street analysts remain upbeat on Facebook. Buy recommendations continue to roll in and price targets reflect a potential return of 35 per cent. Out of the 43 analysts who recommend buying Facebook shares, not one has downgraded the stock over the crisis. However, many acknowledge that bad publicity could keep the stock under pressure.