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Mark Zuckerberg, chief executive officer and founder of Facebook Inc. attends the Viva Tech start-up and technology gathering at Parc des Expositions Porte de Versailles on May 24, 2018 in Paris, France.
- Facebook's regulatory issues are starting to affect "the fundamental business in ways we haven't seen before," an analyst has warned.
- The company has agreed to a $5 billion settlement with the FTC, but is also facing a new antitrust investigation.
- CEO Mark Zuckerberg has warned the company will have to invest in changes, and it may slow progress.
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Facebook's regulatory woes are starting to have consequences.
On the Wednesday of last week, the same day that the US Federal Trade Commission (FTC) announced it had reached a $5 billion settlement with Facebook over privacy issues, the tech giant disclosed in its Q2 2019 financial results that the FTC has opened a second investigation, this one examining antitrust concerns reportedly relating to its core business.
The $5 billion fine notwithstanding, Facebook's numbers for the quarter were strong, and Wall Street largely shrugged off concerns about the impact of regulation. But not everyone is so blasé about the risk, and analysts from financial services firm Macquarie are warning that "regulatory concerns are impacting ... the fundamental business in ways we haven't seen before."
In a research note to investors published on Thursday, analyst Ben Schachter and his fellow analysts raise a note of alarm about how Facebook is starting to be affected in very real ways by the issues.
"They are weighing not just on investor sentiment, but on how [management] is able to run the business," he wrote. "FB's forward-looking [profit and loss] would inarguably look much stronger without the looming regulatory issues that are clearly impacting how it is allocating resources. This is not just raising costs (which it clearly is), but also impacting the timing of product rollouts and improvements, ad targeting capabilities, potential M&A, and, of course, [the management team's] time and focus."
The Macquarie analysts' overall sentiment on Facebook remains positive: They've set a price target for the stock of $215, above the mark of $200 or so that it's currently sitting at, and say the bottom line is that "business is good." But it's still notable that Facebook's slog through regulatory battles is starting to ring alarm bells, and not just with pessimistic naysayers.
Macquarie's concerns echo what Zuckerberg said on a call with analysts on Wednesday - that the FTC settlement will contribute to changes in Facebook's business.
"We're making some major changes to how we build our services and run this company. This will require investing a significant amount of our engineering resources in building tools to review our products and the ways 2 we use data. It will also significantly increase our accountability by bringing the process for auditing our privacy controls more in line with how financial controls work at public companies," the 34-year-old billionaire CEO said.
"It's going to take time to do this properly, and I expect it will take us longer to ship new products, especially while we're getting this up and running. I also expect that, just as with the work we have been doing on safety and integrity, we're going to continue to identify and fix issues as we develop our systems."
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