Facebook, Amazon, Netflix, and even Google — stocks have been plummeting, leading many to wonder whether it’s time to buy or sell. The dust still hasn’t settled yet regarding current privacy concerns, and there’s more at risk than it may at first appear.
That being said, those who want to take a gamble should start paying attention now.
The Privacy Dilemma
Facebook is currently in the middle of an incredibly large scandal involving the harvesting and using of personal data for commercial purposes. It’s been alleged that Cambridge Analytica purchased data for research purposes, and then repackaged and sold that data to commercial enterprises.
Back in 2014, Cambridge Analytica mined up to 50 million Facebook profiles for data. Most of these profiles were not involved in their study, but instead were friends of those who were in the study. As a consequence, even those who had their privacy settings set to only share information with their friends would have been impacted.
This new distrust in privacy controls has cascaded in the form of a loss of investor confidence, as many investors suspect a costly legal dispute is on the way. Information has even been released to suggest that the data mined was used to influence the last presidential election. At the same time, Facebook is no stranger to this type of controversy. In 2014, it was revealed that Facebook had been manipulating nearly 700,000 of its users’ emotions for the purposes of a psychological study. Facebook’s stock did not suffer any substantial or long-lasting impact from this revelation.
None of this answers why tech stocks as a whole are crashing. On March 27th, the DOW slid down 345 points primarily due to the leading tech companies. This is due to concerns that these privacy issues could spread to other platforms, in addition to a general sentiment that the stock market (and especially technology stocks) could currently be in a bubble. These issues are only beginning to surface and may last for a significant amount of time. In the technology sector, the type of information sharing completed by Facebook is not unheard of or even overly unusual, it is what that data was used for that is spurning public outcry.
As investors have seen, it’s extremely easy for panic to cascade into a significant market loss. The more that is lost from these tech stocks, the more likely they are to continue to slide. However, the most important thing remains the fundamentals of the companies — whether they are profitable, stable businesses. Ultimately, this is something that is going to be played out over time, as additional scrutiny regarding privacy issues will emerge. Tech companies that falter under this scrutiny may be in for some substantial losses in the quarters ahead.
SESTA and FOSTA Sowing Additional Uncertainty
Facebook and Cambridge Analytica are only a few of the many driving forces behind technological uncertainty. Less discussed are the consequences of SESTA/FOSTA. While less significant than Cambridge Analytica, this has still led to some hesitation within the tech sector, and may still have some consequences in the days to come.
Well-intentioned but controversial, SESTA/FOSTA is intended to reduce the potential for trafficking over the Internet. Broad language has implied that SESTA/FOSTA may make services responsible for a spectrum of criminal activity that occurs through them, leading to companies becoming wary of potentially crossing these new regulations. These platforms may need to undergo some significant (and expensive) changes to follow SESTA/FOSTA, as loud services have already begun preemptively dropping users and websites have been seen removing some of their adult-related services.
Much of the potential changes regarding SESTA/FOSTA are speculative, such as a question of whether certain adult content may still be allowed on Amazon. However, speculation is what drives market prices. If these changes prove to ultimately be overblown, the impact on the stock prices will be short-lived.
Whether or not tech stocks are currently a solid buy depends on whether an investor believes that these issues will be long-lasting. Should additional security concerns emerge throughout other platforms, such as Google, there could be some substantial changes in regulations and costly litigation. However, if these issues don’t spread beyond the Facebook platform, they could potentially die out.
What is known is that Facebook is still in the midst of an extremely high-profile investigation, which indicates that the big tech stock crash is still just emerging. Even for those who are interested and willing to invest in these stocks, now may not be the right time unless they are willing to endure a bumpy ride.
Regards,
Ethan Warrick
Editor
Wealth Authority