By Gunnar Schifley, Contributing Writer
It was recently revealed that Facebook was inadvertently involved in a political advertising campaign that has shook the faith of their immense user base.
An outside company was able to collect data on Facebook users, then used that data to generate ads supporting Donald Trump that were specifically targeted to users based on the data the company, Cambridge Analytics, collected from users, much of which was garnered through innocent-looking personality tests. This practice has raised a lot of questions for investors, who are currently valuing social media companies.
The first question is obvious and expected: “Is our data safe?”
Users of social media platforms typically share many personal details of their lives and opinions, which is a goldmine for companies looking to use targeted advertising. Users of these platforms now have large concerns over data privacy, to the point that Brian Acton, one of the co-founders of WhatsApp, came out and said it’s time to get rid of our Facebook accounts. WhatsApp was purchased by Facebook in recent years and, despite the fact he left the company, this is still concerning.
This raises further questions for investors. User confidence is declining on social media platforms now, and that is bad for share values. If users are not sure their data will be secure, they may switch to a different platform or reduce their social media presence as a whole.
This loss of confidence in the industry means traffic could shrink, as well as revenues. This decreases the chances and magnitude of dividends and earnings shareholders may receive, as well as the likelihood they will invest in those companies.
There is a potential opportunity for investors, as well. The classic tale of “buy low, sell high” has a real chance to be valuable to investors who still have confidence in these companies. This is a big buying opportunity for investors looking to take a position in this industry, who are willing to take the risk of buying in the downside and have the market again recognize the value in these companies.
I can’t see the user base giving up on the platforms in large swaths, due to the fact that these companies have made a product which is involved in the everyday lives of the customers they serve. This could be an opportunity for many investors to take positions at a discount now.
As investors, we always look for these opportunities. The key to this is all timing.
This is the time to pull the trigger and make the decision to buy in. By tomorrow, the value could change. Events like these must be acted upon or, otherwise, it becomes a very obvious missed opportunity, as hindsight is 20/20. A day too early and you will catch a falling knife; a day too late and the stock has already recovered. Being confident in the investment you want to make is important, but making it at the right time is everything.
Overall, this is a discussion that has been going on for years and seems to never be addressed in a large public forum or legal sense. This is another scandal that will enflame emotions, but will fade away as more news stories come about.
I don’t think the value of the companies will decline; consumers will numb to the conflict and continue using the platforms. Only time will tell if consumers will ever take a hard stance on data privacy and who has access to their personal information.
For now, this looks like a fire sale on social media companies that investors were already considering investing in.
