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Facebook Stock Looks Poised to Face Tough Regulatory Headwinds


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It's rare to find bipartisanship in today's polarized environment in Washington DC. But there is one issue that seems to unite the factions: the distrust of Facebook (NASDAQ: FB ), and that's not good news for Facebook stock.

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That's ironic. Keep in mind that FB continues to be quite popular with its users.  The company has also been aggressive when it comes to hiring and providing juicy salaries. In the first quarter, its headcount grew by 36% on a year-over-year basis to 37,773.

But such things don't really matter much. Over the years, FB has been careless with users' data and privacy. And this has impacted views on FB within DC. After all, the company recently agreed to a $5 billion settlement with the Federal Trade Commission regarding its privacy practices.

Yet this week's testimony regarding FB's planned launch of the Libra cryptocurrency - which has the backing of Visa (NYSE: V ), MasterCard (NYSE: MA ) and PayPal (NASDAQ: PYPL ) - is perhaps the most interesting evidence of the distrust towards FB from Washington.

Here's what Democrat Congressman,Brad Sherman had to say : "The most innovative thing that happened this century is when Osama bin Laden came up with the innovative idea of flying two airplanes into towers. That's the most consequential innovation, although this may do more to endanger America than even that."

Yikes! Oh, and he referred to CEO Mark Zuckerberg as "Zuckbucks."

In the meantime, there was criticism from the other side of the aisle. For example, Federal Reserve Chairman Jerome Powell, Treasury Secretary Steven Mnuchin and President Trump have expressed concerns about Libra.

FB Stock and Libra

David Marcus, who heads up the Libra project for FB, tried his best to handle the questions. He was actually fairly reasonable and understanding.  Keep in mind that Marcus said that the cryptocurrency would not be a vehicle for trading or for banking services. He added that it would also have a great deal of  transparency, helping to reduce its use in illicit activities.

According to InvestorPlace.com columnist Dana Blankenhorn : "The difference is that, while banks today have to police compliance at the teller's window, so to speak, Libra will make its blockchain available to police. Facebook will control neither the network, the currency, nor the reserve backing it. Its Calibra subsidiary will just be running digital wallets."

Marcus also mentioned that FB would not move forward with Libra until regulators are satisfied with it.  In other words, he did demonstrate some finesse.

It's difficult to predict what may ultimately happen to Libra. But given the pushback in Congress, I think the future of Libra does look dicey. Interestingly enough, the value of bitcoin has plunged recently, going from $13,000 to $9,800. The decline  indicates that investors are skeptical about Libra's future.

The Bottom Line on Facebook Stock

The success or failure of Libra probably does not mean a lot to FB and FB stock.  Rather, the hearings point to the ominous fact that FB does face serious political headwinds.

FB's current problems with Washington look similar to those of  Microsoft (NASDAQ: MSFT ) back in the 1990s, when the company came under pressure from antitrust regulators. In fact, the parallels are eerie. Both Bill Gates and Zuckerberg started their technology companies while at Harvard and subsequently cashed in on huge opportunities. Essentially, they ruthlessly created extremely powerful platforms and ecosystems which would be nearly impossible to destroy.

MSFT  become an easy target. There were many companies that wanted to take it down to even the tech  playing field. As a result, MSFT had to focus more and more time and resources on battling regulators. This ultimately led to the company losing its momentum and dominance, until the past couple years.

I could easily envision FB suffering a similar fate. The company has become a convenient punching bag - and for good reason.

I'm not  implying that things will suddenly come undone for FB. For the most part, the company appears to be running on all cylinders. But in the years to come, it would not be surprising to see FB face more problems, making it tougher to be bullish about the long-term outlook of FB stock.

Tom Taulli is the author of the upcoming book,  Artificial Intelligence Basics: A Non-Technical IntroductionFollow him on Twitter at  @ttaulli . As of this writing, he did not hold a position in any of the aforementioned securities.

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The post Facebook Stock Looks Poised to Face Tough Regulatory Headwinds appeared first on InvestorPlace .



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.





This article appears in: Investing
Referenced Symbols: FB , V , MA , PYPL , MSFT



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