Stock Market News – Facebook shares drop below 200-DMA amid privacy investigation, but investors remain bullish in long term
March 28, 2018 10:26 am
The share price of Facebook Inc has fallen by around 18% from its all-time high of $195.32 in late January as the company falls out of favour with investors following the data privacy scandal engulfing the social media giant. The revelation that Facebook was responsible for a breach of its user data and the subsequent handling of it by the CEO, Mark Zuckerberg, has evolved into the worst crisis the company has had to face.
The scandal began on March 17 when reports emerged that Cambridge Analytica, a British political consulting firm, harvested the personal data of 50 million Facebook profiles to influence the 2016 US presidential election campaign. Cambridge Analytica reportedly manipulated the data to develop techniques to be used in support for President Trump’s campaign. Although the data breach was in violation of the 2011 consent decree Facebook had signed with the US Federal Trade Commission (FTC) as well as its own terms of service, Facebook did not disclose the incident and is yet to inform the affected users of the privacy breach.
As a result, Facebook has come under fire from its users, regulators and politicians, as well as shareholders. The company’s share price has tumbled below its 50- and 200-day moving averages following the revelations. The biggest decline came on Monday after the FTC launched an open non-public investigation into the company’s privacy practices. Facebook shares plunged by 6.5% at one point to a near 9-month low of $149.02 before rebounding strongly to close at $160.06.
In addition to the FTC investigation, Facebook is facing class-action lawsuits from both users and shareholders, and Zuckerberg himself has been summoned by several congressional committees to testify before their panel. The Facebook founder is also facing calls by other countries to explain himself. Mr. Zuckerberg on Tuesday declined a request to appear before the UK Parliament, though he did offer one of his other chief officers to answer questions from British lawmakers.
But despite the company experiencing its worst month in over four years, its share price continues to outperform the Nasdaq Composite since its IPO in May 2010. Also, the quick (but short-lived) bounce back after the nosedive to $149 suggests investors see the dips as buying opportunities as they maintain bullish about the company’s longer-term outlook.
In the more near term however, sentiment for Facebook stocks is likely to remain negative for a while yet, until at least the current backlash against the company settles down. The negative publicity has already led to some advertisers from pulling their ads from Facebook’s platforms in boycott to the company’s poor privacy practices.
However, given Facebook’s dominance of social media channels (don’t forget Facebook also owns Instagram and WhatsApp), a large outflux of advertisers does not appear very likely. In fact, most analysts have maintained their ‘buy’ rating on Facebook shares since the crisis started unfolding even as they cut their price targets. Many brokerages have now cut their 12-month price target to between $200-210, though the range is still above the company’s current stock price of $152 per share.
The main uncertainty about the outlook for Facebook and other technology stocks is the prospect of tougher privacy rules and tighter regulation for online companies, including the possibility of a ‘digital tax’ being considered by the European Union. Tougher compliance rules as well as some form of a digital tax would likely hurt tech firms’ profit margins and reduce their attractiveness relative to other sectors. Although such measures would weigh on all technology stocks and not just Facebook, they could drag Facebook shares further lower.
With the share price closing at $152.22 on Tuesday, the immediate support level for Facebook stocks is Monday’s trough of $149.02. Below that, the next support to watch is the May 2017 low of $144.42, followed by the $137.60 area taken from the March 2017 low. Deeper losses could open the door to the November 2016 bottom of $113.55.
In the event, however, that investors come to view the current sell-off as overdone (this is supported by the RSI entering oversold territory), an upside reversal could see the stocks meeting a hurdle at the 50-hour moving average at around $163. Higher up, the 200-day moving average (currently around $172.80) would be the next big test for Facebook stocks before the 50-day moving average comes into scope around $179.40.
All eyes will now be on the release of Facebook’s latest quarterly earnings, which are expected on May 2, for any signs of a negative impact on the company’s revenue from the current scandal and for clues as to how well the company is weathering the storm hitting the tech sector.
The share price of Facebook Inc has fallen by around 18% from its all-time high of $195.32 in late January as the company falls out of favour with investors following the data privacy scandal engulfing the social media giant. The revelation that Facebook was responsible for a breach of its user data and the subsequent handling of it by the CEO, Mark Zuckerberg, has evolved into the worst crisis the company has had to face.
The scandal began on March 17 when reports emerged that Cambridge Analytica, a British political consulting firm, harvested the personal data of 50 million Facebook profiles to influence the 2016 US presidential election campaign. Cambridge Analytica reportedly manipulated the data to develop techniques to be used in support for President Trump’s campaign. Although the data breach was in violation of the 2011 consent decree Facebook had signed with the US Federal Trade Commission (FTC) as well as its own terms of service, Facebook did not disclose the incident and is yet to inform the affected users of the privacy breach.
As a result, Facebook has come under fire from its users, regulators and politicians, as well as shareholders. The company’s share price has tumbled below its 50- and 200-day moving averages following the revelations. The biggest decline came on Monday after the FTC launched an open non-public investigation into the company’s privacy practices. Facebook shares plunged by 6.5% at one point to a near 9-month low of $149.02 before rebounding strongly to close at $160.06.
In addition to the FTC investigation, Facebook is facing class-action lawsuits from both users and shareholders, and Zuckerberg himself has been summoned by several congressional committees to testify before their panel. The Facebook founder is also facing calls by other countries to explain himself. Mr. Zuckerberg on Tuesday declined a request to appear before the UK Parliament, though he did offer one of his other chief officers to answer questions from British lawmakers.
But despite the company experiencing its worst month in over four years, its share price continues to outperform the Nasdaq Composite since its IPO in May 2010. Also, the quick (but short-lived) bounce back after the nosedive to $149 suggests investors see the dips as buying opportunities as they maintain bullish about the company’s longer-term outlook.
In the more near term however, sentiment for Facebook stocks is likely to remain negative for a while yet, until at least the current backlash against the company settles down. The negative publicity has already led to some advertisers from pulling their ads from Facebook’s platforms in boycott to the company’s poor privacy practices.
However, given Facebook’s dominance of social media channels (don’t forget Facebook also owns Instagram and WhatsApp), a large outflux of advertisers does not appear very likely. In fact, most analysts have maintained their ‘buy’ rating on Facebook shares since the crisis started unfolding even as they cut their price targets. Many brokerages have now cut their 12-month price target to between $200-210, though the range is still above the company’s current stock price of $152 per share.
The main uncertainty about the outlook for Facebook and other technology stocks is the prospect of tougher privacy rules and tighter regulation for online companies, including the possibility of a ‘digital tax’ being considered by the European Union. Tougher compliance rules as well as some form of a digital tax would likely hurt tech firms’ profit margins and reduce their attractiveness relative to other sectors. Although such measures would weigh on all technology stocks and not just Facebook, they could drag Facebook shares further lower.
With the share price closing at $152.22 on Tuesday, the immediate support level for Facebook stocks is Monday’s trough of $149.02. Below that, the next support to watch is the May 2017 low of $144.42, followed by the $137.60 area taken from the March 2017 low. Deeper losses could open the door to the November 2016 bottom of $113.55.
In the event, however, that investors come to view the current sell-off as overdone (this is supported by the RSI entering oversold territory), an upside reversal could see the stocks meeting a hurdle at the 50-hour moving average at around $163. Higher up, the 200-day moving average (currently around $172.80) would be the next big test for Facebook stocks before the 50-day moving average comes into scope around $179.40.
All eyes will now be on the release of Facebook’s latest quarterly earnings, which are expected on May 2, for any signs of a negative impact on the company’s revenue from the current scandal and for clues as to how well the company is weathering the storm hitting the tech sector.
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