$100B drop a market record

Years of controversies about privacy finally catch up with the social media juggernaut.

Facebook long had a knack for navigating privacy controversies related to its collection of user data. But the cost of its missteps finally caught up with Facebook this week, sending its market value down more than $100 billion Thursday in the largest drop in value in Wall Street history.

Long-simmering privacy concerns, dating to nearly the birth of the company in a Harvard dorm room in 2004, have in recent months taken more concrete form than ever. In May, the European Union imposed a strict new regulatory regime. U.S. officials, meanwhile, have begun scrutinizing Facebook in a multi-agency federal investigation related to its handling of a recent scandal that exposed the information of 87 million people.

Worries about the rising costs of privacy regulations, along with declining growth in users and revenue, played a key role in a major Wall Street sell-off Wednesday night and Thursday, with Face-

book’s stock closing down 19 percent, at its lowest level in nearly three months. The steepness of the decline suggests investors are re-evaluating the viability of Facebook’s core business — collecting extensive data on users so that they can better target them with advertising — in a world in which public pressure is mounting for stricter privacy protections.

“This is a privacy wakeup call that the markets are delivering to Mark Zuckerberg,” said Jeffrey Chester of the Center for Digital Democracy, a privacy advocate.

Facebook’s bad day on Wall Street raises questions about the fate of other big technology firms, such as Twitter and Google, which, like Facebook, have been grappling with rising privacy concerns and congressional demands to more aggressively combat the flow of disinformation on their platforms.

Twitter saw a sharp decline after The Washington Post reported three weeks ago that the company was suspending fake and suspicious accounts at a record pace and might see a decline in its monthly users. The company is expected to report its second-quarter earnings Friday.

But analysts noted that Google’s parent company, Alphabet, saw shares surge Monday after reporting strong earnings despite the new European regulations and a recent $5.1 billion fine for antitrust violations, suggesting that investors have specific concerns about Facebook and its recent bout with scandals.

The public mood regarding Facebook also has arguably soured amid the privacy controversies and revelations about the platform’s role in spreading Russian disinformation during the 2016 presidential election. Calls to #DeleteFacebook have spread on Twitter, and some prominent people have announced that they were stepping away from their heavy use of social media.

In terms of measurable impact on Facebook, the new European rules, called GDPR for General Data Protection Regulation, led to a decline of 3 million users on that continent, company officials revealed in an earnings call Wednesday. Facebook said that the changes would continue to hurt revenues as more people opted out of ad targeting in the months ahead. The company also said it would lose money because its advertiser partners also had been affected by GDPR and because of other privacy changes to come.

Analysts Thursday morning began debating whether Facebook’s tumble signaled the likelihood of long-term stagnation or merely was a stumble — and hence an opportunity to buy a fundamentally strong stock before it continues rising again.

Richard Greenfield of BTIG called the dip in users related to GDPR a “onetime step down, not a building headwind” in suggesting that Wall Street was overreacting.

“We were pretty stressed out during Facebook’s Q2 2018 conference call and could sense the fear/panic in investors’ voices afterwards,” he wrote. “But as we sat back and reflected on why we believe in Facebook, the core tenets of our investment thesis are unchanged. ... Mobile is eating the world, and Facebook is a core holding to benefit from that shift.”

What remains less clear is whether the push for tougher privacy regulations has peaked or is still building. The fate of Facebook — and other tech companies — probably depends on the answer to that question.