What’s in Stock for Facebook Stock?

The world’s most dominant social media company is in the middle of uncertainty. After grappling with multiple data privacy and disinformation scandals for the past year, Facebook is now facing senior employee turnover that has got the whole of Wall Street nervous, if not afraid.

At the centre of all this is CEO Mark Zuckerberg’s strategy shift for the future of Facebook that seeks to reorient the company from an open and public social company (essentially public broadcasting), to a privacy-focused platform that will emphasise more on private messaging. It is this shift in strategy that has inspired senior employee turnover and has provided the latest headwinds to the Facebook stock.

But what’s in stock for Facebook stock in the long run? Could Mark prove a genius strategist yet again? Or will Facebook now start its long journey to ruins?

Senior Executive Turnover

Facebook announced the departures of senior executives: Chief Product Officer Chris Cox; Chief Communications Officer Rachel Whetstone; WhatsApp co-founder Jan Koum; Chief Security Officer Alex Stamos; and Instagram co-founders Kevin Systrom and Mike Krieger. This continues a long list of senior executives leaving since 2018, and there is a real worry of a negative network effect that will see more exits coming. In technology companies, and particularly the FAANGS, people are extremely important and are a key competitive edge. While Facebook still has a wide pool of talent at its disposal, investors are rightly worried at this major shake-up in a company that has, in the past, prided itself in keeping executives around. It would seem that the Facebook family might just be seeing new faces soon.

In the medium term, the departures will likely have a negative impact on the stock. Top management departures are a major factor on investors’ watch lists, and the current exits will inspire negative sentiment on the company’s stock. While the immediate concern for investors is that competitors can now land proven talent, the opportunity for Facebook is that it can realise even more diversity in leadership that could positively impact on its strategy going forward.

Data Privacy Scandals

Last year, Facebook was thrown into a major data scandal when it emerged that Cambridge Analytica, a political consulting and data analytics firm, had harvested data of millions of Facebook users and used it for political reasons. Facebook’s response to investigators was that it was duped by the company that the data was for academic purposes. But this only served to highlight the lax policies the company had on data privacy. Yet, this was only the start. It later emerged that Facebook had given big companies deep access to its users’ personal information, including permitting others to flout users’ privacy configurations. The companies included smartphone makers, such as Apple, and other tech giants, such as Microsoft, Amazon and Netflix.

While integration between tech companies is commonplace, it has been said that Facebook divulged more detailed information than before, and without users’ consent. Facebook is currently discussing a settlement with the Federal Trade Commission over privacy violations, and the latest scandal will likely be weighed in what would be a multi-billion dollar fine and, without doubt, the highest ever in the US. Aside from the obvious loss of cash reserves, Facebook will now come under huge scrutiny and will become a target of major regulatory measures.

Over the long-running Cambridge Analytica saga, Facebook’s stock remained resilient and even started 2019 on a positive note until the recent revelations pressured it lower. With advertising revenues showing no signs of slowing down, Facebook may yet remain buoyant even in the face of recent revelations. But can it withstand an overall strategy change?

Change in Strategy

Facebook has a stated mission of making the world ‘more open and connected’, a strategy that has catapulted the company to become one of the most valuable in the world. Having become a mature company, a change in strategy was due. And ironically, Facebook is now looking to go ‘more private’. The shift in strategy is in response to the numerous privacy scandals, and it has already had its fair share of casualties in the exodus of top executive resignations. A privacy-focused path of the social media giant would see the company lose a chunk of its advertising revenue and probably, it will diminish the value of the Facebook brand. But on the flipside, there would be a whole new opportunity to exploit.

The merging of its major apps (Messenger, WhatsApp and Instagram) could create a massive ecosystem, with its billions of users, which could open up massive revenue potential for the ‘private’ Facebook. A template is already in place for such a proposition, as WeChat, a Chinese company, has managed to become the centre of online communications and transactions in China and beyond.

A potential disruption in the social media sector thrusts Facebook in the start-up stage yet again. A private Facebook may take a little longer to unfold, but the upward potential is massive. And this may be good news for the mature company and the Facebook stock.

This material was provided by AvaTrade, which allows trading stocks of major companies, including Facebook, via CFDs (Contracts For Difference ) on its trading platform.

This article does not necessarily reflect the opinions of the editors or management of EconoTimes.