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Investor Sentiment Unfazed By Facebook's $5 Billion Fine

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Facebook, Inc.(NASDAQ:FB) has just been slapped with the biggest ever fine in privacy enforcement actions. Still, it’s stock is none the worse for it; and it’s even made some gains following the ruling. On Wednesday, the Federal Trade Commission (FTC) formally approved a 20-year, $5 billion settlement with Facebook, Inc. (NASDAQ:FB) over the company’s long-standing data privacy issues. 

That penalty goes down as the largest ever by the trade watchdog against a tech company, yet the market appears completely nonplussed. FB stock hardly budged, dropping half a percentage point before reversing course and finishing the day one percent higher. So, why the indifference?

After all, not many companies have the luxury to easily shrug off a fine of that magnitude. Facebook’s penalty is nearly 20x bigger than what the FTC slapped on Equifax for an extensive data breach a few days ago.

(Click to enlarge)

Source: Recode

Business as usual

Well, it’s simple really.

For starters, it certainly helps that FB is currently valued at $566 billion thus making the $5 billion fine seem like a drop in the bucket-- though it does represents nearly 10 percent of the company’s 2018 revenue.

It also helps that FB is set to report second-quarter earnings on Wednesday after-market close--the fact that it has managed to exceed Wall Street estimates virtually 100 percent of the time serving as a big draw.

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Yet, merely tying the bullish reaction to the company’s size or a possible earnings beat would be misleading. The biggest reason why investors are elated at the decision is because it’s going to be business as usual for the social media giant.

The FTC has just gifted FB free rein to continue harvesting data from its 2.2 billion users and use it to power its incredibly powerful ad business with majority voting commissioners Joe Simons (FTC chairman), Noah Joshua Phillips and Christine S. Wilson heralding the record-breaking fine a “historic victory for American consumers.”

Facebook should count itself lucky though. According to the Washington Post, the FTC initially considered penalties worth tens of billions of dollars but was wary of engaging the American icon in years’ long court battle.

Not everybody, though, is happy that FB has gotten off lightly. The decision appears to have been strongly influenced by party affiliations with the three consenting commissioners being Republican while the two dissenting ones are Democrats.

First dissenting FTC commissioner Rohit Chopra has written:

“Facebook’s violations were a direct result of the company’s targeted behavioral advertising business. The proposed settlement does little to change the business model or practices ...[and] imposes no meaningful changes to the company’s structure or financial incentives.”

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The other dissenting voice was by Democrat Rebecca Kelly Slaughter:

“While it is difficult in this case to quantify the economic value of the violations to the company, there is good reason to believe $5 billion is a substantial undervaluation,” she wrote in a dissenting statement. “The fact that Facebook’s stock value increased with the disclosure of a potential $5 billion penalty may suggest that the market believes that a penalty at this level makes a violation profitable.

To be sure, FB will have to undertake a raft of reorganizations to avoid a repeat of the Cambridge Analytica scandal. These include adding layers of committees, inspectors and rules to its internal oversight branch. Further still, FB will have to cough up another $100 million to the SEC as settlement for charges that it did not do nearly enough to inform investors about the damage wrought by the scandal.

Still, you cannot help but feel that this judgement has made a lot of data-mining and ad businesses very happy.

By Alex Kimani for SafeHaven.com

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