Shares of Facebook, Inc. (Nasdaq: FB) have crumbled since the revelation over the weekend that the data firm Cambridge Analytica improperly “harvested” information on about 50 million users in an effort to help targeting efforts for the 2016 Trump campaign. Is it possible FB stock is still a buy?
In short, yes.
[See: 7 of the Best Dividend Stocks to Buy for 2018.]
The market’s been going bonkers in reaction to the harvesting news, with Facebook shares losing 6.8 percent Monday — its largest single-day loss in four years — and FB shedding another 5 percent in morning trading on Tuesday.
Here are three reasons Facebook’s plunge is overdone, and the stock is actually a steal:
Mr. Market’s being hypocritical. The number of serious corporate data breaches and hacks in recent years is dizzying to keep track of. But if some of the largest breaches in recent history are any indication, someone looking at a few examples might actually consider the Facebook-Cambridge Analytica fiasco a buy signal for FB stock.
In 2015, health care insurance giant Anthem Inc ( ANTM) was outright hacked, and the very, very personal data of more than 78 million customers — we’re talking social security numbers, employment information, some income data, medical identification and more — was obtained.
Since that hack, which compromised data from 28 million more people than in Facebook’s case, ANTM stock soared from about $135 a share to $229 a share today. There wasn’t even a significant pullback upon the initial discovery of the hack.
In May 2014, Ebay ( EBAY) revealed there was a data breach affecting 145 million users, or about triple the number of people affected in the overblown Facebook-Cambridge Analytica nonsense. Shares have roughly doubled since that announcement less than four years ago.
Was FB even “breached”? Plainly and simply, Facebook stock is taking a beating largely because there’s such a media circus around these events, and the reason for that is political: It’s another layer in the investigation into 2016 election meddling.
However, calling this a “data breach” is incorrect, and FB insiders have pushed back on that labeling. The current uproar is about a 2015 incident when the social media giant learned that a University of Cambridge professor had improperly passed on data from an app to Cambridge Analytica.
“At the time, Facebook removed the app and required the data to be destroyed, but last week, Facebook found that the data was not deleted (despite prior certifications it was),” explains Bank of America Merrill Lynch research Analyst Justin Post in a March 19 research note.
All in all, this is almost immaterial to Facebook stock. While 50 million users sounds like a lot, it frankly just isn’t. Not for Facebook, which has 2.2 billion monthly active users. That means this 2015 third-party “harvesting” that’s been dominating the news cycle and decimating the FB stock price relates to about 2 percent of the platform’s users.
Even for those 2 percent, nothing so serious as medical information or social security numbers appear to have been accessed. This is much-ado about nothing and a great opportunity to buy FB stock on the dip.
“On an isolated basis, we don’t think this story changes the FB thesis,” Post says.
[See: 7 of the Best Tech Stocks to Buy for 2018.]
“Fundamentally, the Instagram, messaging & advertiser ROI thesis seems intact, and we continue to believe valuation is compelling at current levels,” Post wrote in the March 19 research note that maintained BAML’s “buy” rating and a price target of $265, or nearly $100 per share above Facebook stock’s current price.
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Facebook, Inc. (FB) Stock Is Still Strong Despite Data Scandal originally appeared on usnews.com
