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Facebook [FB] share price holds firm amid increased regulatory scrutiny

Facebook [FB] is yet again at the centre of another privacy fiasco. This time, the collection of third-party data from external apps through its mobile software development kit (SDK), which the Wall Street Journal brought to light in an exposé on 22 February. 

Surprisingly, its share price has been largely unchanged following the news. In fact, it rose 0.7% throughout the day as investors appeared unfazed.Facebook 1-year share price performance, CMC Markets, as at 13 March 2019

 

The social media giant’s stock has rallied over 20% since the start of 2019, with its impressive fourth quarter results helping it reach a high of $171.16 on 5 February – the same date the company incorporated 15 years ago.  

Indeed, the tech company is likely to suffer more consumer confidence backlash from the news that allegedly 11 popular apps in health and fitness were sharing personal information with the social network company. 

For the moment, engagement on the site still remains high with 2.7 billion people using its flagship Facebook network, as well as Instagram, WhatsApp and Messenger each month, and 2 billion using at least one out of the four a day. 

“Engagement appears stable, as the daily and monthly active user ratio held steady,” Baird analyst Colin Sebastian wrote in a note to clients.

A New York governor meanwhile has ordered two state agencies to investigate the media report, which Facebook said it would assist with. 

“Engagement appears stable, as the daily and monthly active user ratio held steady” - Baird analyst Colin Sebastian

“As [the WSJ] reported, we require the other app developers to be clear with their users about the information they are sharing with us, and we prohibit app developers from sending us sensitive data. We also take steps to detect and remove data that should not be shared with us,” the company said in a statement.
 
Just the day before the media report was released, CEO Mark Zuckerberg had said that a “societal guardrail framework” would soon be implemented to give users more transparency as to how their data was used as well as welcomed more legislative control.

Zuckerberg’s efforts come after German’s antitrust regulator issued a ruling designed to stop it from collecting and combining data from source outside its network earlier in the month, and in the UK, lawmakers have said there will be “large fines” for firms that fail to act on harmful content.  

 

Direct-to-consumer ads key to growth

Regulatory scrutiny and the tech sell-off in October contributed to Facebook’s share price declining more than 27% in 2018, but since the middle of last year, its earnings have continued to grow to record levels and its stock has enjoyed a sustained rally recently.

  

Market cap£490.67bn
PE ratio (TTM)22.71
EPS (TTM)7.57
Quarterly revenue growth (YoY)30.40%

Facebook stock vitals, Yahoo finance, as at 13 March 2019

 

Startup direct-to-consumer brand’s marketing spending has been key to the company’s growth, especially via targeted advertising on social networks. 

The growth of many retail tech startups can be attributed to the platform’s advertising tools over the last decade, which has helped expand the ad market overall, according to Evercore ISI’s Anthony DiClemente, who says that “for every dollar that shifts from manufacturers like Nike to direct-to-consumer brands like Allbirds, the ad market expands by close to $0.15”. 

Ad spending should provide a sustained tailwind for major performance marketing channels like Facebook and could create a self-reinforcing cycle, DiClemente added. 
    
Facebook remains the most popular platform for brands to build business exposure, with 45% of ‘disruptor’ brands using the platform compared to 15% of established ‘non-disruptor’ brands. 

45%

Percentage of disruptor brands using Facebook to build business exposure

Facebook's marketing solutions vice president, Carolyn Everson, said that anywhere from 10% to more than 90% of disruptor brands' budgets go towards Facebook, with 89% citing it as an effective form of marketing and 79% seeing “consistent revenue growth” as a result of it. 

Direct-to-consumer brand spending on digital marketing looks to be a sustained tailwind for Facebook as it is still the largest networking platform for businesses and people.  

And while Facebook’s share price continues to weather the negative media coverage and regulatory crackdowns, the company’s increased data protection measures and improved reliability are bound to help it continue to grow at an exceptional rate.

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