Facebook's Latest Flap Hasn't Hurt the Stock…Yet

Bloomberg News

The steady flow of Facebook's privacy woes keep piling up.

In its latest expose, the New York TimesreportsFacebook (ticker: FB) knowingly granted four Chinese electronics companies -- including Huawei, a company considered a national security threat by U.S. officials -- access to Americans' data.

The news comes on the heels of another Timesreport that Facebook gave dozens of device makers -- including Apple (AAPL), Samsung Electronics (South Korea: 005930), BlackBerry (BB), and Microsoft (MSFT) -- "deep access" to personal information of Facebook users' friends without their explicit consent.

Facebook strongly disputed both stories. Huawei (China: 002502), Lenovo (Hong Kong: 0992), Oppo, and TCL (China: 000100) were among handset makers given access to Facebook data in a "controlled" manner approved by the social media giant, Francisco Varela, Facebook's vice president of mobile partnerships, said in a statement.

Huawei spokesman Joe Kelly told the Associated Press that Huawei "has never collected or stored any Facebook user data."

The disclosures, on top of the Cambridge Analytica scandal that started the negative drumbeat, would surely damage any company, given the current national narrative of heightened concerns over privacy in the digital age and growing distrust of tech in general and social media companies specifically.

And yet, Facebook has proved to be a teflon stock.

Though its down 1% today, to $190.93, the stock is still up 8% for the year, and 25% over the last 12 months. Facebook and Google continue to dominate online advertising globally and register robust earnings. Analysts have barely budged in their assessment of their business prospects. Google-parent Alphabet (GOOGL) shares are up 9% year to date.

"[Facebook] shares have shown a snap back recovery since the Cambridge issue broke as the damage to the company's $50 billion advertising kingdom and 2 billion+ users has been very contained thus far in our opinion," Daniel Ives, head of technology research at GBH Insights, said in a note Wednesday. GBH maintains a "Highly Attractive" ratiing and $225 price target on Facebook shares.

Even threats of regulation from U.S. and European lawmakers, if enacted, are unlikely to have much of an impact. Indeed, tougher rules would merely cement the dominance of Facebook, Google and others while "killing off the next wave of startups" that don't have the money or resources to comply, Theresa Payton, White House Chief Information Officer from 2006 to 2008, tells Barron's.

"You would think there would be a cumulative effect, when some polls show up to 50% of Americans don't trust Facebook," says Payton, who is now Chief Executive of cybersecurity consultancy Fortalice Solutions. "But you don't see a corresponding drop in its use, if any."

Facebook's doggedly loyal members -- it had 2.2 billion monthly active users at last count-- show no sign of fleeing because the service is "entrenched in so many of their daily lives," Dan Goldstein, president of Page 1 Solutions, a full-service digital marketing agency, tells Barron's.

"[Facebook users] gloss over terms and conditions of the privacy agreement, and they're not following the daily news," Goldstein says. "It's similar to the political landscape. Meanwhile, look at the stock prices and market valuations of Facebook and others. They're headed to $1 trillion" in market value.

Still, pockets of resistance are forming that could eventually get the attention of Facebook and others.

When Alphabet shareholders meet in Mountain View, Calif., today, a group of Google investors plan to call on the company to produce a detailed report on the impact of fabricated content on its platform and business.

Lead filer, investment advisory firm Arjuna Capital, and co-filers the New York State Common Retirement Fund, Harrington Investments and Baldwin Brothers, are pressing parent company Alphabet to bring the issue into sharper focus. Altogether, the four investment groups have more than a $2 billion stake in Google.

"It's time Google is held accountable for evaluating the risks that arise when users violate its own terms of service," Natasha Lamb, managing partner at Arjuna Capital, tells Barron's. "The potential harm to the company's reputation, finances, and operations can no longer be ignored."

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

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

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