Facebook (NASDAQ:FB) is seemingly about to receive an immense $5 billion settlement fine from the Federal Trade Commission for privacy violations and is being torn apart in the public square as its proposed Libra cryptocurrency comes under media and government scrutiny. Despite this, or in fact as a result of this, I believe Facebook could hardly be better positioned for future growth and expansion.
The combination of a relatively small slap-on-the-wrist for all the company’s various scandals and practices, which could have resulted in far worse, and the paper tiger hearings leaves FB able to pursue future growth with its major recent worry – U.S. government intervention – seemingly put on the back burner for now.
Fines and Hearings Avoid Far Worse Scenarios for Facebook
Ever since the Cambridge Analytica scandal in March 2018, government regulators all over the world have set their sights on Facebook. In the United States, we’ve recently seen much of that year and a half of investigation and oversight culminate in a $5 billion fine from the Federal Trade Commission (FTC).
While the fine hasn’t been officially announced yet, when the news broke on July 12, Facebook’s stock jumped from a July 11 close of $201.23 a share to a July 12 close of $204.87 a share. Public reaction from those advocating a hard line on Facebook was extremely negative, citing how the $5 billion fine, while large from the FTC, paled in comparison to FB’s yearly revenue and profit. This was particularly even more so given what the FTC’s settlement was for, which was extensive, seemingly privacy and user abuses by the company.
A $5 billion fine isn’t nothing. It is a lot of money. However, given that Facebook reported $22.112 billion in net income on $55.838 billion in revenue in 2018, the impact likely will fade fast, given how it potentially resolves many of its regulatory worries that have been building up over the years.
It remains to be seen if any kinds of regulatory injunctions or orders will be issued that restructure Facebook’s operations in a way that negatively affects business. However, given the alternatives that were being discussed – from erasing the ability to advertise to users based on interests and activity to even breaking up the company – a mildly hefty fine is, in this case, getting off easy.
Yet, as this week began, Facebook faced another regulatory gauntlet, specifically congressional hearings over its proposed “Libra” stablecoin cryptocurrency. FB faced harsh questioning from both sides of the aisle and was assured, and assured in return, that its cryptocurrency would not be released or approved until working to satisfaction with regulators and government authorities.
Libra poses a particularly unique basket of regulatory concerns for Facebook due to its mix of Internet services and banking. These are uncertainties that are still to be resolved due to Facebook and Libra’s unique ecosystem. However, whatever eventual paradigm is put into place likely will not affect Libra’s fundamental attractiveness to Facebook users and its potential to increase user activity in revenue-generating ways for the company.
Facebook’s stock barely reacted to the hearings and the negative lines of questioning, closing Monday and Tuesday roughly flat before then experiencing a modest decline.
The fact is that the United States is the biggest market currently for Facebook. Of the company’s $16.914 billion in Q4 2018 revenue, about half, or $8.433 billion, came from the United States and Canada. Therefore, the potential of a business-disruptive regulation in the United States posed the most threat to the company. While Europe’s constrictive actions taken against Facebook may pose challenges to the company’s revenue operations there, it simply is not as remotely a big of current or future potential future as the United States.
The combination of a seemingly lax FTC fine to resolve much of Facebook’s ongoing privacy issues is a major win for the company as it settles its arguably biggest current worry and avoids the far worse potential actions that awaited the company. The Libra hearings are similar, as we saw how last year’s far more vicious congressional hearings against Facebook in the wake of Cambridge Analytica amounted to little concrete action taken against the company.
In combination, recent events are seemingly turbulent for the company, but are in fact a seeming resolution of some of what have been the company’s biggest threats these past few years.
Facebook has again avoided a serious disruption to the way its business operations currently work and the circumstances under which it takes place. Therefore, it’s up and up, as the company continues to expand its Internet empire.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.