The tectonic shift for Facebook

The tectonic shift for Facebook

Last Friday, I attended a conference call with Dr R David Edelman, Former Special Assistant to President Obama for Economic and Technology Policy, National Economic Council (NEC), where he discussed the tectonic shift in terms of the headwinds facing Facebook, and to a lesser degree the US Technology Sector.

Without going into the specifics of the Cambridge Analytica situation, the crux of the matter is that from 270,000 purchased participants for a “personality profiling quiz”, “vast troves of information” was then captured from an estimated 50 million friends. In terms of Facebook’s response, the executives seem to have publicly underestimated the degree its platform had been misused.

According to Edelman, Facebook is now in a very difficult political position with “The Left” attributing micro-targeting and advertising to Hillary Clinton’s 2016 Presidential election loss, while “The Right” believes Facebook is playing the role of “moderator and unconstitutional censor”.  Further, each of the States’ Attorney Generals – members of the “Future Governors Club of America” – will find it politically expedient to go after Facebook.

Edelman discussed the significant headwinds now faced by Facebook, including potential fines, litigation, regulation and the long-term public relations implications.

Other thoughts included:

• Has Facebook, for example, breached its continuous disclosure requirements from the SEC regarding the cyber security issues?
• Has Facebook breached the Federal Trade Commission Act, and if so, does the potential $40,000 violation apply to each of the 270,000 “purchased participants” or to each of the estimated 50 million friends? and
• To what degree will we see a “snowball of emails” turn up from inside Facebook which makes the Company look bad?

After hitting a record high of US$193 on 1 February 2018, the Facebook share price has declined 18 per cent to US$159, and much of this decline occurred in the past week.

The Montgomery Global Funds own shares in Facebook. This article was prepared 26 March 2018 with the information we have today, and our view may change. It does not constitute formal advice or professional investment advice. If you wish to trade Facebook you should seek financial advice.

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Chief Executive Officer of Montgomery Investment Management, David Buckland has over 30 years of industry experience. David is a deeply knowledgeable and highly experienced financial services executive. Prior to joining Montgomery in 2012, David was CEO and Executive Director of Hunter Hall for 11 years, as well as a Director at JP Morgan in Sydney and London for eight years.

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