On July 25, 2018, Facebook (NASDAQ: FB) shares reached an all-time high of $ 217.50, representing a gain of more than 450 percent compared to the initial public offering. At the time, Facebook seemed to be the strongest investment compared to all social media companies.
Other industry giants such as Twitter (NYSE: TWTR) and Snap (NYSE: SNAP) have fallen since the initial public offering of stock prices, reflecting concerns about the applicability of business models. However, Facebook had a positive and steady increase in earnings, return on equity and reasonable valuation rates. What could go wrong?
Actually, it’s too much. A lot went wrong. As you know, the 2018 Cambridge Analytica data leak, a series of scandals and internal power struggles have led Facebook shares to fall over the past year.
So, what exactly is happening on Facebook? Should investors be worried about the company’s long-term future?
We need to start with data leaks to tell us about Facebook’s latest troubles.
The Cambridge Analytica scandal, where a British political consulting firm took and used the personal data of millions of non-consenting Facebook users, became the largest and most well-known Facebook data leak. But not only that.
Many Facebook employees who suffered ethical dilemmas due to the Cambridge Analytica scandal demanded transfer to other departments of the company, such as Instagram and WhatsApp. Many employees whose demands were rejected resigned. It was claimed that Facebook employees resigned because they could not withstand this ethical pressure.
In addition, according to Reuters’ report, a team of 260 people under a project, all Facebook posts, one by one, and more specifically sent to the analysis of these messages appeared to be included. Moreover, this team was not composed of Facebook employees, but external employees.
More recently, a journalist from the Daily Beast deciphered the identity of the person who created and published the scandalous video of US House of Representatives Nancy Pelosi, with the help of a Facebook employee who had access to private user data.
Other infiltrations other than Cambridge Analytica may seem relatively minor, but in general there is a much bigger problem: Facebook does not do much to prevent more than 35,000 employees from misusing access to sensitive information.
There are other social media platforms, but no other Facebook. The only social media platform with a comparable number of users, Instagram, which is also a Facebook subsidiary.
Given the dominance of Facebook and its control over the personal data of billions of people, antitrust investigations against the company do not seem surprising.
Chris Hughes, one of the co-founders of the company, recently said that Facebook should be split in order to gain competition and accountability in the social media sector.
This idea is being thought through. Last Monday, lawmakers in the US House of Representatives announced they would monitor Facebook and other major technology companies in this sense.
Facebook shares more than 7 percent on the day of this disclosure
Mark Zuckerberg is at the center of all this chaos. Last week, at the annual shareholder meeting of Facebook, Zuckerberg, 35, represented the majority of the company because of his shares.
Facebook’s B-type stock structure makes it impossible to fire Zuckerberg unilaterally. Although the majority of shareholders want him to go, Zuckerberg can veto such proposals alone, as he controls roughly 60 percent of the vote.
Facebook’s share is definitely well managed and has a reasonable value. In addition, the company has a low price gain ratio and high return on equity.
However, given the possibility of more data leaks, the risk of antitrust investigations and shareholder revolts, one can easily say that the worries are not irrelevant and now is not a good time to buy more shares from Facebook.