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Facebook Roundup: Data Breach, Kavanaugh, Kids, Instagram & More

Zacks

The top stories from last week include a massive data breach, employee protest surrounding the Kavanaugh hearing, a complaintfiled with the FTC about Facebook’s FB Kids app and more. Here are the details-

Data Breach

Facebook recently disclosed a massive data hack that exposed 50 million or around 4% of its user base. Another 40 million accounts were deemed to be “at risk.” Hackers apparently stole user IDs that allowed them to log in as regular users. Facebook logged out all these accounts to protect its users.

How much other personal information was stolen (personally identifiable information, like social security numbers, passwords or credit cards remain safe) or used in a manner not intended and whether other Facebook services like Instagram and WhatsApp were involved probably won’t be clear until the company and the government complete their investigations.


Facebook said that the hackers used three application vulnerabilities that could be exploited to access accounts only when used together, so a patch is probably in the works. The motive for the hack remains unknown.

Facebook has said that it is contacting affected users directly and given the history, not many will likely defect. But governments across the world may increase scrutiny, particularly the EU, which recently launched its data protection rules (GDPR). Ireland has already initiated a probe and the EU commissioner is getting involved. There are no similar rules in the U.S. but the FTC may start an investigation given that privacy has become a major issue on people’s minds and something that the government is also taking seriously.

Kavanaugh Hearing

When Facebook’s VP of global public policy, Joel Kaplan made an appearance at his childhood friend Supreme Court Justice Brett Kavanaugh’s Senate hearing, he set up a storm of protest from employees. Kavanaugh was accused of sexually assaulting Christine Blasey Ford while in high school.

Being a top official at the company, his presence at the hearing may indicate that Facebook also supported the act. The company maintains that while the appearance was a personal choice, it may not have been the best one, especially considering the company’s interests in attracting and keeping users, employees and advertisers.

Separately, the company was sued in Harris County District Court in Houston by a Texas woman who claimed that a pimp, posing as a Facebook friend in 2012 when she was only 15, met her on some pretext to rape her and post her pictures on a website called backpage.com.

The website was closed down earlier this year after a Justice Department investigation revealed that it was primarily used to sell sex. The woman said that Facebook hadn’t done enough to verify the user's identity or warn her that sex traffickers were lurking on the platform.

It’s significant that the lawsuit has come now, just months after Congress passed the bipartisan anti-trafficking bills called Stop Enabling Sex Traffickers Act and Fight Online Sex Trafficking Act, collectively known as SESTA-FOSTA. The law now makes it harder for Internet service providers to avoid liability for content posted by its users by closing a loophole in the "safe harbor" provisions of the Communications Decency Act.

FTC Complaint Against Kids App

The Campaign for a Commercial-Free Childhood (CCFC) and other child protection advocacy groups have asked the FTC to investigate Messenger Kids for violating the Children's Online Privacy Protection Act (COPPA). The app launched last December and is now available on Apple’s AAPL iOS, Alphabet’s GOOGL Android and Amazon AMZN devices and also in some international markets like Mexico and Canada.

The platform apparently doesn’t verify the approving parents’ credentials, so practically anybody can sign up as a parent and approve a child’s activity as well as the sharing of its data. Moreover, the privacy policy is "incomplete and vague," allowing Facebook to disclose data to third parties and other Facebook services "for broad, undefined business purposes."

Facebook says that it doesn't show ads on Messenger Kids or collect data for marketing purposes, though it does collect some data that it says is necessary to run the service.

Instagram Location Tracking

With the departure of Instagram founders, Facebook is getting closer to milking the platform for data and monetization. So Zuckerberg’s friend Adam Mosseri, who previously looked after the news feed, is now heading Instagram. And according to seasoned Instagram tipster Jane Manchun Wong, the platform is testing a system of sharing users’ precise, geotagged location data with the main Facebook app.

Located in the Privacy and Security settings, the Location History option “Allows Facebook Products, including Instagram and Messenger, to build and use a history of precise locations received through Location Services on your device.”

A Facebook spokesperson says in response: "To confirm, we haven't introduced updates to our location settings. As you know, we often work on ideas that may evolve over time or ultimately not be tested or released. Instagram does not currently store Location History; we'll keep people updated with any changes to our location settings in the future." Which could very week mean that the thing has been tested and may be rolled out soon.

Analysts Upbeat

RBC Capital’s Mark Mahaney believes that Facebook will get over its current problems both with respect to privacy and regulatory issues and the latest data breach. It therefore makes sense to invest in the name while its trading down.

"I think there's a couple of pieces that are going to come together in terms of new monetization, new products and greater platform security — and that package, when it comes out, that's going to be the asset to buy, but I think you can buy it here," the analyst told CNBC.

"The really interesting risk/reward in the group [FAANG] — and you're probably not going to get paid for it in the next 30 days, but in the next year — is Facebook," he added.

Separately, the Sequoia Fund bought more Facebook shares in the third quarter. The firm, which manages around $4.5 billion, initiated its holdings in the company when shares plunged in response to the Cambridge Analytica scandal.

Recommendation

Facebook shares have a Zacks Rank #4 (Sell). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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