Data breach has rocked trust in social media giant, but is it still a good investment?
The #deletefacebook campaign gathered momentum yesterday – surprisingly backed by the co-founder of WhatsApp – but Canadian advisors said investors should not hit the panic button.
The consensus is that the underlying fundamentals of the social media giant remain good despite the storm over Cambridge Analytica harvesting users’ personal data from about 30 million accounts. It is alleged that the data from Facebook was used to influence the outcome of the US election.
Jason De Thomasis, financial planner at De Thomas Wealth Management, said data breaches are increasingly a way of life in the current tech-driven world but said the dip of almost 10% - it trimmed its weekly decline to 8.7% yesterday - in Facebook stocks was simply a “blip” that for the bigger, long-term players may represent an opportunity.
However, he said that if the company’s business practices were exposed as being systemically to blame, it could become a bigger issue for its reputation and value.
He said: “If you thought Facebook was a profitable company and a good investment prior to the data breach, just because someone was able to access that data, I don’t think it changes anything in terms of it being a good investment. But the market got scared – if someone says ‘boo’ then it can affect something in a negative way.”
He added: “There were no major issues from their business model or revenues or their sponsors, so I don’t think there is a major change. If something comes out that says there is a vital thing that they were doing wrong over X number of years that led to this, that would be something catastrophic that they can’t recover from. But someone trying to hack in, I can’t see this being anything other than a blip.”
Michael Currie, vice president and investment advisor at TD Wealth, said that while he was not a fan of extra regulation, he believes that in this instance it could help restore some confidence to investors. However, from a profitability standpoint, he said Facebook is still a solid investment.
“I think you always have to be worried about a stock like Facebook because it is an above-average volatility stock that takes big ups and takes big downs. It’s a huge, huge company, they make tons of money, they keep beating earnings and the fundamentals look very strong. The valuations are, of course, stretched but it’s kind of always stretched.
“If you go back three or four years, it was a very high valuation and it kept beating the numbers, so on the growth side there’s nothing to really worry about but if you are a balanced, conservative type of investor, it’s probably not the type of stock you should be in.”
For Jason Pereira, senior financial consultant at Woodgate Financial and IPC Securities Corp, the story highlights one of the biggest issues of our time, data privacy and data rights, and said it boils down to manipulation. However, he added that through willingly handing over personal details in order to use social media, we have “created a monster that now threatens democracy as a whole”.
He believes the future impact of this data breach is something investors should keep an eye on.
He said: “Do [Facebook] still make an incredible amount of money off that data? They do. The question is, what happens in the future when there is a great push towards data privacy and rights. What is the impact then? That is a completely unknowable fact.
“Nothing changes but it has to be something that sits on portfolio managers’ minds if they are familiar with the tech sector because the pressure will start to build in terms of introducing legislation. The one thing every industry that’s unregulated fears is regulation.”
Christopher Dewdney, financial planner and principal at Dewdney & Co, believes things will get worse for Facebook stocks before they get better.
Christopher Dewdney was awarded in the recent 5-Star Advisors – Ontario 2023 as one of The Best Wealth Advisors in Ontario. See the full report here.
He said: “The sector as a whole, I’m not too concerned about. Facebook individually, absolutely and depending on the weighting in the fund you hold, it would have an effect but on the long-term trajectory for tech we’re bullish, but there is a small hiccup with Facebook.”
He added: “In the 1990s, Bill Gates was going through a major headwind with antitrust and it didn’t look good, but Microsoft is still the powerhouse today that it’s always been, so I don’t know how this is going to play out.”
