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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.
This research is produced by Accendo Markets Limited. Research produced and disseminated by Accendo Markets is classified as non-independent research, and is therefore a marketing communication. This investment research has not been prepared in accordance with legal requirements designed to promote its independence and it is not subject to the prohibition on dealing ahead of the dissemination of investment research. This research does not constitute a personal recommendation or offer to enter into a transaction or an investment, and is produced and distributed for information purposes only.
Accendo Markets considers opinions and information contained within the research to be valid when published, and gives no warranty as to the investments referred to in this material. The income from the investments referred to may go down as well as up, and investors may realise losses on investments. The past performance of a particular investment is not necessarily a guide to its future performance. Prepared by Michael van Dulken, Head of Research
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