Facebook’s (FB) stock price has plunged recently—axing $50 billion from its market value—following new revelations of data abuse during the 2016 elections. But it wasn’t an ordinary hack, with criminals stealing Social Security numbers or credit-card data. Facebook actually gave a third-party researcher permission to access the data in question. What happened next has created a lot of confusion.
When we asked our audience what questions they wanted us to answer this week, many pressed for a better explanation of what the heck actually happened at Facebook, and how it might affect ordinary users. Starting with this:
What type of information was breached? Will it hurt anyone financially? Cambridge Analytica, the research firm that eventually gathered data on as many as 50 million American Facebook users, got a lot of the private information Facebook keeps on its users: the causes, groups and products they “like,” their list of Facebook friends, and many of the things they share with friends. The group also administered “personality quizzes” that allowed it to build deeper profiles of some users.
Cambridge Analytica, which worked for Donald Trump’s presidential campaign, was able to manipulate that data in a way that supposedly helped it target ads at Facebook users vulnerable to persuasion during the 2016 elections: Those who might vote for Trump, say, if nudged a certain way, or who might be convinced not to vote for Hillary Clinton. What we don’t know is how effective that Facebook campaign was. Did it swing a meaningful number of votes Trump’s way? Or did it mostly just reach people who already knew who they were voting for? We’ll probably never know.
Facebook actually allowed an academic researcher to access that data, back in 2015, thinking it would be used purely for research purposes. What Facebook didn’t know is that the researcher then contracted with Cambridge Analytica, essentially using the data for commercial use in a political campaign. Facebook has since tightened its rules and doesn’t allow such use of user data. But it does allow advertisers to micro-target Facebookers using mostly everything the social-media giant knows about them.
As far as we know, no hackers or criminals got access Facebook users’ data in this instance. So it shouldn’t cause anybody that kind of financial harm.
Should CEO Mark Zuckerberg and COO Sheryl Sandberg step down? Both have borne heavy criticism for waiting several days to say anything public about the controversy, leaving underlings to explain and defend the company (which they generally did poorly). That was a mistake, but neither exec is likely to be going anywhere, at least not because of this. Zuckerberg controls Facebook’s voting shares, giving him an extraordinary degree of control, for a public company. Sandberg is still considered a bright light in Silicon Valley who may have political ambitions. They both seem to understand they have a big problem to solve.
Will Facebook’s revenues take a hit? Unclear. One reason the stock is down is because the company could face new regulations and perhaps new lawsuits. That wouldn’t necessarily hurt revenue, but it would add to costs and therefore dent net income. The controversy would only hurt revenue if it led more people to leave the platform, fewer to join, and those there to engage less. We’ll know more when Facebook reports first-quarter earnings, which is scheduled for May 2.
Will Facebook’s stock rally? It could. Wall Street analysts surveyed by S&P Capital IQ have an average 12-month price target of $220 on Facebook shares, which is about 35% higher than the current price.
The joke used to be, will the last person on MySpace please turn out the lights. Will Facebook become just as irrelevant? Nope. Facebook is here to stay. It’s the world’s dominant social-media platform by a mile, and don’t forget, it also owns Instagram and WhatsApp. There’s really nothing like it in terms of scale, ubiquity or stickiness. It also happens to be free to users, so it’s not like people will zero it out of their budget. If you use Facebook today, odds are you’ll still be using it, one way or another, in 10 or 20 years.
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Rick Newman is the author of four books, including Rebounders: How Winners Pivot from Setback to Success. Follow him on Twitter: @rickjnewman
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