For reasons almost unknown, the media coverage on Facebook’s (NASDAQ: FB) data breach through unauthorized sharing is gaining momentum. The attention gave the stock enough selling pressure to knock the stock to a low of almost $150 last week. As time passes, markets will tend to forget about the user data privacy loss and users will happily return to the site.
When the public realized that Cambridge Analyticas could have used the Facebook data to target its advertising and to sway voters in the last U.S. election, a #deletefacebook movement began. The exodus of users seems unlikely to have any momentum: it is well-known to users that all social networking sites will use personal data in exchange for free access.
That Cambridge Analyticas used the data the way it did will have repercussions, though. Governments will take a harder look at protecting user privacy. While this will increase costs for Facebook and Twitter (NYSE: TWTR), chances are low that advertising revenue will get hurt, if at all.
Traditional media firms benefit from any negative news against Facebook but that will not change the permanent online trends. Users will spend more and more time on such sites, cut the consumption of TV, newsprint, and magazines, and accelerate a shift of advertising budgets to the social networking sites.
At a P/E of below 30 times and a forward P/E of below 20 times, Facebook stock is attractive. Expect a bounce in the stock and a recovery over time.
