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Facebook Still Under EU Scrutiny with New Data Privacy Law in Line

Zacks

Facebook, Inc. FB is still recovering from the damage wreaked by the Cambridge Analytica data scandal. It had affected around 87 million users and allegedly influenced the 2016 U.S. presidential elections.

Notably, the European Union (EU) had defamed Facebook regarding the data breach fiasco and expressed its interest in initiating an investigation on Mar 20, right after the news went viral. It seems that EU is still sticking to its ground and is unimpressed with Mark Zuckerberg’s sorry image.

Per CNBC, EU is planning to intensify the investigation process related to “harvesting of personal information.” The Working Party 29, which takes care of the data-protection authorities of the EU nations, will reportedly form a Social Media Working Group aimed at creating unified strategies for further investigation.

Furthermore, a new law related to data privacy called General Data Protection Regulation (GDPR) is expected to come into existence in the EU on May 25. Per the latest introduction, Europeans will have the rights of knowing which of their personal data businesses are collecting and will have the right to delete those if need be.

This law, once implemented, might impact companies which generate most of the revenues from advertisements which, in turn, need a huge amount of personal data for correct targeting of customers.

For the social media giant, Facebook, which generated around 98% of its revenues in 2017 from advertisements, this implementation might be a huge drag on its top-line growth. Meanwhile, Facebook’s stock has been hit badly by the alleged data misuse scandal. The company’s shares have lost around 5% since the news surfaced on Mar 19.



Facebook Continues to Strive

Apart from just being apologetic, Facebook is actually adhering to its word of maintaining data privacy as stated in the apology statements.

Facebook recently removed more than 270 accounts and pages operated by the Russian organization, Internet Research Agency (IRA), which were aimed at influencing the 2016 U.S. presidential election. The company also announced that only authorized advertisers will be able to post political ads going forward, which will be labeled as “Political Ad” bearing “paid for by” information.

Furthermore, Facebook suspended two more data analytics companies, namely CubeYou and AggregateIQ, over unauthorized handling of user data. It is also investing in artificial intelligence (AI), and recruiting more people for handling data security and content.

To Conclude

We believe Facebook’s efforts to plug security loopholes as well as limit fake news will eventually boost trustworthiness. Sequoia Fund’s investment for a minority stake in the company amidst this scenario is a testament to the fact.

However, we are apprehensive about this Zacks Rank #4 (Sell) stock’s near-term performance as the eroded brand image will take some time to shine again.

Key Picks

Investors interested in the broader technology sector can consider some better-ranked stocks like Paycom Software PAYC, Western Digital Corp. WDC and Applied Materials, Inc. AMAT. All the three stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rates for Paycom Software, Western Digital and Applied Materials are currently pegged at 24.75%, 19% and 13.26%, respectively.

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