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This week, US tech stocks have faced heavy losses as an emerging UK data scandal faces investigations by authorities in both Europe and North America.
This report will break down the key issues, including what is happening and why, as well as delving deeper into the sharp moves these US stocks have made.
Over the weekend, the UK’s Observer and the US New York Times reported that Cambridge Analytica, a UK political consultancy credited with helping Donald Trump win the US Presidency, had illegally retained access to the data of 50 million Facebook users.
Furthermore, Channel 4 revealed on Monday that the company used underhand tactics, such as corruption and entrapments, to influence political opponents.
The scandal has raised a wider question over how the company came to hold the data of these Facebook users, as well as how this data was then utilised.
The scandal has resulted in Cambridge Analytica CEO Nix being suspended after being filmed claiming his company engaged in ‘honey traps’ and bribes.
It has also raised concerns from regulators on both sides of the Atlantic about how Facebook and other social media companies collate and distribute data.
The UK parliament’s Digital, Culture, Media and Sport Committee, the European Commission and the US Federal Trade Commission have all requested founder Mark Zuckerberg, or a senior executive, provide evidence about Facebook’s involvement.
Facebook was the first company to face the wrath of investors, falling 8.3% since Monday after the news broke. This equates to almost $50bn of the company’s market cap being lost in just two days.
But it’s not just Facebook that has been hurt in the scandal, as other social media companies also face greater scrutiny over how they handle users’ data.
Twitter shares fell over 10% on Tuesday as it became the latest big name to suffer a reduction in confidence from investors over how it handles data.
There have also been sharp moves lower by Snap, the parent company of popular messaging app Snapchat, falling by 2.6% on Tuesday, and Google parent Alphabet, itself 3.4% lower so far this week.
It’s worth noting that the scandal has erupted just months before Europe introduces stricter data protection rules with heavy fines for offenders.
The scandal has not had a significant impact on US tech stocks which investors believe less personal data that could be exploited for illegal purposes.
Companies such as Netflix and Amazon, despite seeing a marginal retreat in share price on Monday, saw strong recoveries on Tuesday, highlighted by Amazon overtaking Alphabet as the world’s second largest company behind Apple.
Over the page, we look at four major US tech companies affected in varying degrees by the ongoing Cambridge Analytica scandal.
Facebook, the company at the centre of the Cambridge Analytica scandal, has seen its shares fall markedly. Regulators on both sides of the Atlantic are demanding answers from the social media company as to how the data of 50 million users was both released to the political consultancy and what that data was used for.
Shares fell 7.3% on Monday after the weekend’s revelations, before falling another 2.6% on Tuesday. Despite falling once again, however, shares closed well off their lows as investors price in the potential impact on shares.
Will Facebook return to 2018 highs of $195 (+16%) or breach September lows of $162 (-3.7%)?
Broker Consensus: 90% Buy, 6% Hold, 4% Sell
Bullish: RBC Capital Markets, Outperform, Target $250, +49% (1 Mar 17)
Average Target: $222.4, +32% (21 Mar 18)
Bearish: Pivotal Research, Sell, Target $152, -9.6% (19 Mar 18)
Pricing data sourced from Bloomberg on 23 March. Please contact us for a full, up to date rundown
Twitter is another social media company that has borne the brunt of the Cambridge Analytica scandal. Regularly in the news for allegations of fake accounts or ‘bots’, as well as being the social media outlet of choice for US President Trump. The company reported it had over 260 million users at the end of 2017.
The company’s shares fell over 10% on Tuesday as it became the latest company to be targeted during the ongoing scandal, although have yet to fall below $30 or February’s lows of just above $24.
Will Twitter return to 2018 highs of $37 (+18%) or fall to 2018 lows of $22 (-30%)?
Broker Consensus: 16% Buy, 57% Hold, 27% Sell
Bullish: Argus Research, Buy, Target $40, +28% (9 Feb 18)
Average Target: $27.7, -12% (23 Mar 18)
Bearish: Atlantic Equities, Underweight, Target $14.5, -54% (8 Feb 18)
Pricing data sourced from Bloomberg on 23 March. Please contact us for a full, up to date rundown.
Snap, the parent company of popular picture messaging app Snapchat, is a relative newcomer to the world of social media. However, the company has already faced scrutiny from investors over both its popularity and the use of users’ data, given that its most popular feature is its ‘disappearing’ photo messages.
Its shares have come under pressure as a result of the Facebook scandal, however they have not faced as much selling as social media peers. Will the shares therefore recover some poise before larger rivals?
Will Snap return to 2018 highs of $21 (+31%) or fall to November lows of $12 (-25%)?
Broker Consensus: 23% Buy, 48% Hold, 29% Sell
Bullish: Goldman Sachs, Buy, Target $23, +44% (7 Feb 18)
Average Target: $15.7, -1.8% (23 Mar 18)
Bearish: Susquehanna Financial, Negative, Target $7, -56% (16 Feb 18)
Pricing data sourced from Bloomberg on 23 March. Please contact us for a full, up to date rundown.
Netflix, the video streaming service, has been one of the US tech stocks least affected by the ongoing Facebook scandal. Despite being one of the largest US tech companies, with almost 120 million users worldwide, the company’s smaller social reach means that users are less likely to share important data between themselves.
While other tech stocks in the US face share price declines of well over 10%, Netflix shares are trading back at the same price as they were on Friday. Will they be able to climb to better 2018 highs as peers fall by the wayside?
Will Netflix return to 2018 highs of $334 (+5.2%) or fall to February lows of around $235 (-26%)?
Broker Consensus: 55% Buy, 38% Hold, 7% Sell
Bullish: Pivotal Research, Buy, Target $400, +26% (6 Mar 18)
Average Target: $277.7, -13% (21 Mar 18)
Bearish: Societe Generale, Sell, Target $132, -58% (25 Jan 18)
Pricing data sourced from Bloomberg on 23 March. Please contact us for a full, up to date rundown.
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