Thursday, 2 May 2019

The Sharks Are Circling Facebook

Every company in a booming industry faces it at some point.

Sometimes companies caught up in the mix survive and thrive. Sometimes they fall flat on their face and fold.

The U.S. still has a massive, thriving meat-packing industry, despite the sweeping regulations spawned from Upton Sinclair’s vivid exposure of this once-corrupt business.

The coal industry, on the other hand, probably won’t survive. I’m not taking political stance here. It’s just facts. Regulations needed for clean coal are too expensive and the industry is fading. Whether you like it or lump it.

Today regulators have a new public enemy No. 1. It’s social media, most specifically Facebook (NASDAQ: FB).

The sharks are circling and it’s to the tune of $5 billion.

Regulators: Friend or Foe?
Regulations, in general, protect you and me. They generally ensure the populace’s health and safety.

The simplest example I can think of is seat belts They DO save lives. They’re also cheap for automakers to include in their cars. Good regulation.

At the same time regulations can stifle innovation. Take for instance Uber’s battle with the NYC taxi union. Those legal fights don’t pay for themselves. It’s a big expense to bear and contributes to Uber’s inability to turn a profit.

Of course this wasn’t the first time regulators tried to kill ridesharing. Remember jitney buses? Probably not since these “share taxis” hit their stride in the early 1900’s. But minus the smartphone, they were essentially one of the first Ubers.

That is until streetcar operators lobbied against ridesharing and jitney buses ceased to be. Strangely, a few decades later regulators (backed by oil industry lobbyists) decided driving solo was akin to Nazism in the 1940s.

As a staunch capitalist I’d be remiss not to say too many regulations hurt more than help.

Personally, I much prefer Uber over the old yellow cabs. I’m not the only one. And the innovative service that consumers prefer should not be stifled because a competitor can’t get their act together.

But what about Facebook? As we all know they aren’t the squeaky-clean company we thought they were. Yet despite the slew of damaging reports FB has continued to grow in popularity with consumers

Unstoppable, Indomitable Facebook
Facebook’s privacy issues, and regulators’ calls for action, are a complicated case. Facebook clearly did not make privacy a priority. It clearly has used user data in illegal or unethical ways.

I have no problem with FB or its executives being held accountable for their mistakes. But a $5 billion fine from the FTC means nothing to this social media giant.

If you’re a shareholder, breathe easy. FB is an unstoppable force.

Speaking to trading expert Greg Guenthner about the FTC fine, he notes it’s not enough money:

$5 billion is chump change to King Zuck. He probably has that and more in his couch cushions.

FB execs of course are saying all the right things today, noting they plan to make privacy a priority and even floating the idea of creating a new oversight position within the company.

At their recent developer conference Mark Zuckerberg went on record stating, The future is private. We’ll see if he sticks to his words

As for the stock it’s only a hair under all-time highs today, which is incredible considering the heat the company has taken this year.


The simple lesson here is don’t bet against FB. Unlike jitney buses and Big Coal, social media is here to stay.

And Facebook is going to be the lead dog in this sector for years to come.

Don’t be afraid to tuck away some shares for the long haul.


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