Impact of Cambridge Analytics Data Scandal On Facebook

Impact of Cambridge Analytics Data Scandal On Facebook

Facebook's market capitalisation lost over $100 billion in a day. Investors had looked like Facebook's only friends. Many younger users had deserted the social network years ago for alternatives like Snapchat. Regulators are investigating the company after the massive data leaked to Cambridge Analytica. Politicians are angry that Russian disinformation may have sowed division ahead of the US 2016 election. Juckerberg said- "We didn't take a broad enough view of our responsibility, and that was a big mistake and it was my mistake. And I'm sorry. But nothing had lost....is the friendship of investors who had bid this stock up to an all-time high".

Facebook shares had bottomed out in March after the Cambridge Analytica scandal first erupted, but since then they've gone on a very nice rally. That meant the shares were extended, and perhaps overextended, leading into this earnings season. It's important to remember that Facebook shares are still higher than where they started the year. So investors were clearly spooked by these results, but they're hardly panicking yet. Facebook makes its money from advertising. Growth is partly faltering as it tries to find new places to put ads in front of eyeballs. But advertisers seem unlikely to desert the network just yet.

Advertisers have, surprisingly to some, not pulled away from the website. We've seen even in this quarter, when there were a lot of bad results, advertisers spent $13bn on the website. That was up 40% from a year ago. So for now, it seems that Facebook is deemed to still be too big and important to pull away from. Facebook and Google still have this duopoly in terms of digital advertising. So if you want to be seen online, there isn't much of a choice still other than to spend on Facebook.

Advertisers might be pushed to leave Facebook if the bulk of users were to go elsewhere. But user numbers keep rising. The hashtag "#DeleteFacebook" movement after the Cambridge Analytica scandal failed to make an impact. And even people who never use Facebook are often avid users of Instagram, which Facebook owns. That said, last quarter user growth did slow. 

Facebook is mainly adding users in developing countries which don't have large digital advertising markets. North American users held steady. And European users actually dropped by a million as new privacy rules meant they had to consider data protection policies before logging in. That might be a sign of a longer term decline. Or it could be a blip, as people just didn't want to tick through all those pesky boxes. So, have we reached peak Facebook? The answer is clearly no.

The dramatic drop in Facebook's market cap marked the end of an era where Facebook was the bright young thing of the tech industry. But now as it starts to grapple with some big grown up problems, we see that it still remains by far the largest social network in the world.