Facebook Inc. (NasdaqGS:FB)’s stock tumbled 21% in March when revelations surfaced that political analytics firm Cambridge Analytica, which helped guide President Donald Trump’s 2016 presidential campaign, paid for data on 87 million Facebook users without their consent.
But after a strong showing by founder and CEO Mark Zuckerberg in front of Congress to address selling of users’ data in breach of a 2012 consent decree, Facebook’s stock ran right back up to make new all-time highs at $203.55.
Now, in a 747-page document released to Congress last Friday, Facebook admitted giving dozens of companies special access to user data after telling Congress it restricted personal information to outsiders in 2015.
Facebook’s Lying Hasn’t Hurt Its Stock, Yet
After Zuckerberg’s April testimony before Congress, Facebook followed up in June with 450 pages of answers to outstanding questions asked by Senate and House committees.
The latest, more-expansive set of answers delivered to the Energy and Commerce Committee of the U.S. House of Representatives in response questions from April, was received shortly before midnight Friday, according to the committee’s website, hours after the close of business Friday, the official deadline for submission.
The new document disclosures follow a Wall Street Journal article in June that reported Facebook struck customized data-sharing deals that gave select companies, such as Nissan Motor Co., access to user records for their apps well after the point in 2015 when it said it walled off that information. Nissan is listed in Friday’s document.
Almost all the data deals revealed in Friday submission contrasted Zuckerberg’s and Facebook’s former statements that the company restricted personal information to outsiders in 2015.
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According to the Journal, the “special deals were required to give app developers time to become compliant with changes in its policies, and to enable device and software makers to create versions of the social network for their products.”
Facebook was sharing information about users’ friends, including names, gender, birth dates, hometown, photos, and page likes with 61 app developers six months after it said it stopped access to such data.
In the hearings, lawmakers asked Zuckerberg if Facebook was ever in violation of a settlement made in 2012 with the Federal Trade Commission, which required the company to give users “clear and prominent notice” and obtain their “express consent” before sharing their information beyond their privacy settings.
Facebook says it hasn’t violated the FTC pact.
However, Mark Zuckerberg admitted Facebook hasn’t been able to reconstruct what happened to users’ data. The company said, “It is possible we have not been able to identify some extensions.”
Profit from Facebook’s Fall (Without Shorting)
In Friday’s document, the company said it shared information about its users with 52 hardware and software makers. Those companies included Amazon.com Inc. (NasdaqGS:AMZN), Apple Inc. (NasdaqGS:AAPL), and Microsoft Corp. (NasdaqGS:MSFT), as well as Chinese firms Huawei Technologies Co. and Alibaba Group Holding Ltd. (NYSE:BABA).
Fourteen companies still have access to Facebook’s users’ data, according to the document.
Facebook says it allowed access so companies could create versions of Facebook for their devices – to provide “hubs” where users could see notifications from Facebook, allow users to sync Facebook contacts and photos on their devices, and send users notifications from Facebook via text message. But device makers and software makers got to keep and use all that data.
“These integrations were built by our partners, for our users, but approved by Facebook,” Facebook said in the document.
The questions investors need to ask themselves now are: What will come of the new revelations? Has Facebook been in violation of the 2012 FTC settlement? Will Zuckerberg be accused of lying to Congress?
So far, Facebook’s stock has thumbed its nose at Congress and analysts who expected Congress to craft new data protection rules.
But that could change.
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Lawmakers and would be lawmakers could get aggressive in the run-up to midterm elections. The FTC could pursue Facebook for fines that technically could be in the billions of dollars. Mark Zuckerberg himself could face a real Congressional backlash.
If you’re an FB investor, it might be time to put down a stop-loss order to protect your huge gains.
If you’re a speculator who thinks FB is facing some serious challenges, the FB December 21, 2018 $150 Puts (FB181221P00150000) around $2.00 might be a cheap way to play potential fall from grace for the Teflon social network’s stock.
It will be interesting to see how markets react to FB in the coming months, but it will not be the only stock whose downfall I am anticipating.
In fact, every week I determine new opportunities to profit from a company’s decline – without shorting.