Reuters
Facebook Inc.’s response to the data-user crisis that has triggered a global outcry will be vital to the company’s long-term survival.
That’s according to Heath Terry, Goldman Sachs’s lead internet analyst, who said other companies in this space have survived similar issues as Facebook FB, -5.45% which has been slammed by reports that data on more than 50 million users had been gathered by political consulting firm Cambridge Analytica.
“Google GOOGL, -0.76% had something very similar in its early days with click-fraud and it was how the company managed through it that ultimately cemented the company as the kind of powerful platform that it is,” Terry told CNBC in an interview on Tuesday.
“That’s going to be the same here for Facebook. It’s going to be how they manage through this that will ultimately determine their long-term future,” he said.
For now, the data-scrape that has triggered a global outcry, knocked nearly $40 billion off market cap and even inspired the hashtag #DeleteFacebook, a movement calling on users to dump the site that has been picking up steam. It comes as the site’s audience is already prickly over Russian efforts to manipulate it during the U.S. presidential election.
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Terry said there will be a “very small segment of the population” that reacts to news such as the data scrape, and some may delete apps. “At the same time for most people, this is a utility. This is something they get a lot of value out of or they wouldn’t be spending the amount of time that they do. And I think for most people, the utility far outweighs these issues,” he added.
That’s not to say Facebook shouldn’t try and stay out in front of the crisis, and will need to be ”on their front foot.” And it’s likely that stiffer regulations may very well come out of Facebook’s user-data issue that will impact growth for internet companies with large platforms. The outcry has come from lawmakers on both sides of the Atlantic.
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But for investors who are hanging in there, he said Instagram and the WhatsApp messenger services are still bright spots for the company and advertisers. “A dark way to look at this is the fact that Facebook advertising was used this way because it works,” he said.
“If we were not talking about moving political opinion, but moving opinion about a brand or product we wouldn’t be having this conversation. And so for Facebook and for their advertisers looking at this, at some levels this sort of solidifies the vale of the messaging and the advertising they’re able to do,”’ Terry said.
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Facebook shares fell another 4.8% on Tuesday, and are now down 6.9% for the year to date, while the S&P 500 SPX, +0.04% has gained 1.6% and the Dow Jones Industrial Average DJIA, +0.38% has gained 0.1%.