Facebook has lost $100B in value — and its money problems may just be beginning

Click to play video: 'Facebook shares spiral after U.S. agency makes public its Cambridge Analytica investigation'
Facebook shares spiral after U.S. agency makes public its Cambridge Analytica investigation
WATCH: Shares in Facebook dropped more than five per cent Monday after the Federal Trade Commission published its Cambridge Analytica investigation – Mar 26, 2018

Facebook’s stock price has plummeted in the fallout from the recent data scandal, shaving over US$100 billion off the company’s market value.

According to experts, these financial woes are only the beginning for Mark Zuckerberg’s social media juggernaut, as he continues to reckon with the threat of further regulation and the backlash from user distrust.

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“I think they are already seeing financial hurdles,” said David Soberman, a professor of marketing at the University of Toronto.

In recent weeks, it’s been revealed that the political consulting firm Cambridge Analytica obtained profile information of 50 million Facebook users, which it allegedly used to assist in multiple election campaigns since 2014. Facebook’s handling of user data has been called into question in the aftermath of the leak, which has prompted calls for further regulation of internet firms and the protection of consumer information on the internet.

In addition, the hashtag #deletefacebook has been trending for over a week as more and more people consider leaving the platform.

Facebook’s stock took a nose dive as the story unfolded, which only accelerated as country after country launched investigations into Facebook’s data-handling practices. Both Canada and the United States have launched federal investigations into these practices.

The company’s market capitalization is currently just over US$440 billion. That’s down nearly US$100 billion from US$538 billion on March 16.

“The fundamental problem for Facebook is that these privacy issues that have been highlighted have compelled regulators to take a closer look,” said Lisa Kramer, a professor in the department of management at the University of Toronto.

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She went on to explain that if the practices that allowed Facebook to essentially collect user information and sell it to advertisers are banned or reigned in, it could significantly impact the company’s bottom line.

Furthermore, if users continue to delete their Facebook accounts, advertising revenue will decline.

“Users are being alerted to the use of information that they weren’t aware of. Many are beginning to delete their accounts,” said Kramer. “Fewer eyeballs to advertise to spells trouble for advertising revenue.”

While Soberman doesn’t believe that the scandal is enough to sink what’s become one of the world’s most profitable companies, he acknowledges that regulating the practices that allowed Facebook to rake in astronomical profits from advertising could pose some long-term obstacles.

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“What you’ve got on the internet is a network that doesn’t have boundaries. It’s kind of unregulated,” said Soberman. “It won’t be able to maintain its current level of profitability because it won’t be able to do some of the things it has been doing,” he concluded.

While we wait to see what impact these events will have on Facebook’s bottom line, Kramer warns that the low stock price doesn’t mean it’s the right time to invest, as the stock price is likely to continue going down before it comes back up.

“The typical investor should not invest more in Facebook than they can afford to lose,” at least for right now, said Kramer.

Facebook’s stock was trading on the NASDAQ exchange at just over US$185 on March 16 when it started to fall. Today it’s around US$152, a drop of more than 15 per cent. That said, the stock is up about eight per cent from a year ago, when it was trading around US$140.


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