Edge-ucation / Market Commentary

Facebook Goes Down Monday Following A Bombshell Whistleblower Interview

  • Edge Editorial Team

    At Edge Investments, we make investing in small cap stocks enjoyable and edge-ucational. We are here to teach you about investing, keep you up to date on news, and help connect you with companies that you may have a desire to invest in.

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With roughly 2.89 billion monthly active users on the platform, Facebook is the largest adopted social network worldwide. 

Facebook has certainly had quite the eventful start to the week.  

From an exclusive whistleblower interview to simultaneous app crashes to the stock’s largest daily share price decline of the year, Mark Zuckerberg’s US$940 billion company and two of its subsidiaries dominated news headlines the internet memes. 

If you did not know, Facebook owns both Instagram and WhatsApp. 

Facebook, including Messenger, along with its two subsidiaries experienced a 6-hour shutdown midday starting at 11:40am EST on October 4, impacting an unknown number of users. 

According to the website downdetector.ca, over 30,000 outages were reported for Facebook before noon. Instagram showed 20,000 reports, and WhatsApp had over 13,000 users contact to report complaints. 

All 3 apps have billions of users across the globe. 

On rival platform Twitter, Facebook tweeted the company is “working to get things back to normal as quickly as possible.” 

Despite application crashes being common, the three app platforms being affected synchronously for an undisclosed amount of time has raised a few eyebrows this time around. 

Not to mention, Facebook has another headache on its hands after a bombshell whistleblower interview aired the night before the crash occurred. 

Enter the Facebook Whistleblower 

Meet Frances Haugen. 

Haugen made an appearance on Sunday evening’s CBS television program “60 Minutes” in an interview conducted by Scott Pelley, where she revealed that she was in fact a whistleblower for the social media giant Facebook. 

Haugen worked as a product manager on the civic misinformation team. 

Documents that she provided helped a Wall Street Journal (WSJ) investigation on Instagram’s harmful effects to teen girls, which underwent a Senate hearing. 

WSJ published a series of stories based on internal presentations and emails from Facebook that revealed the company’s failure to reduce vaccine hesitancy and admitted awareness that the Instagram algorithm was harmful to the mental health of teenage girls. 

The data showed that Facebook contributed to the polarization of young females with the highly edited and exaggerated features of many Instagram models causing depression, body dysmorphia, and other conditions. 

Interviewer Scott Pelley noted that “One study says 13.5% of teen girls say Instagram makes thoughts of suicide worse; 17% of teen girls say Instagram makes eating disorders worse.” 

“There were conflicts of interest between what was good for the public and what was good for Facebook,” Haugen said during the interview. “And Facebook over and over again chose to optimize for its own interests like making more money.” 

According to Haugen, Facebook has lied to the general public about any progress it has made to reduce hate speech and misinformation. She even goes as far as to mention that Facebook helped organize the U.S. Capital riot back on January 6, after Facebook turned off safety systems following the U.S. presidential elections. 

Although Haugen is refraining from any allegations of malevolence against the social media platform, she stands strong with her view that the company has misaligned incentives. 

Facebook spokesperson Lena Pietsch argued, “We continue to make significant improvements to tackle the spread of misinformation and harmful content.” She continued, “To suggest we encourage bad content and do nothing is just not true.” 

In further defense of the company, Facebook’s VP of Global Affairs Nick Blegg, barked that the idea of the January 6 Capitol riot occurring due to social media is “ludicrous,” he told CNN. 

John Tye is the founder of a legal nonprofit called Whistleblower Aid. He helps people like Haugen with the legal resources needed for cases such as this where individuals take on the dubious task of going head-to-head with behemoth-sized companies. 

Not only is Tye’s company taking on Haugen’s case pro-bono, but the firm has also started a GoFundMe campaign with the goal of raising US$100,000 to cover legal costs. The fund has raised over US$35,000 to date from its +475 donors. 

According to Tye, Facebook’s internal documents have been shared with attorneys from many states, including California and Tennessee. 

Complaints were filed with the Securities and Exchange Commission (SEC) on the grounds that Facebook is required by law to disclose everything to their investors, and not withhold any material information. 

Haugen is not done yet, as she and Tye plan to speak with lawmakers from several Asian countries, where many of the issues surrounding Haugen’s case initially stem from, such as ethnic violence in Myanmar. 

Haugen and Tye are expected to stand before British parliament later this month. 

What This Could Mean for Facebook’s Stock 

Now, we are not going to pretend the stock market was bullish this week. However, Facebook’s share price inevitably slid amongst a mixture of bad press and negative market sentiment. 

Facebook, Inc. ($FB) is down 13.38% on the month, 6.16% on the week, and had its worst daily price decline of the calendar year down 4.89% on Monday. It has hit an all-time high 27 times in the last 12 months. 

Mark Zuckerberg, Founder & CEO recently sold 77,300 shares at $342.17 per share, receiving US$26,450,043 in proceeds. Despite this impressive payday, Monday saw US$7 billion shaved from his net worth. Facebook’s dip knocked him to 5th place on the Bloomberg Billionaires index, just below Bill Gates. 

The stock currently has a beta of 1.32, which means for every 1% the benchmark index moves, Facebook moves 1.32x that much on average. 

Regardless of the heat Facebook is facing in the public eye, the technical metrics do not lie. Which is why many analysts are giving Facebook buy ratings. 

34 analysts rated $FB a buy, 12 of them rated it a hold, and 1 rated it as a sell. 4 of the analysts rated the stock as overvalued and not a single analyst rated it undervalued. 

Despite its price-to-earnings ratio (PE ratio) floating between 17.32 and 47.26 in the last 5 years, the company has been generating gross profits of US$69.27 billion from US$85.97 billion in revenue. 

Facebook’s second-quarter earnings report for this year did not disappoint, as the company showed a 35.73% growth in net income. Earnings Per Share (EPS) were projected by analysts to be $3.03, and Facebook exceed those expectations by nearly 20% to $3.61.  

The company’s balance sheet stood healthy with net assets sitting at US$19.82 billion + US$2.82 billion in shareholder equity. 

Unless the whistleblower situation grows significantly in merit resulting in consequences for the company, the turmoil that Facebook is going through may be short-lived. The median price target for the next year based on an average of analyst ratings is about $425 per share. 

Facebook facilitates algorithms that optimize engagement from their users. Understandably enough, not all engagement is good engagement. It appears as if Facebook needs a bit of a social and moral filter integrated with its technology. 

While a lack of maliciousness is good, it is not enough to make up for the hidden costs of negligence. 

While Facebook remains a strong asset to buy within the stock market, it may have some cleaning up to do. 

Be sure to stay posted for regular updates on events like this one!

  • Edge Editorial Team

    At Edge Investments, we make investing in small cap stocks enjoyable and edge-ucational. We are here to teach you about investing, keep you up to date on news, and help connect you with companies that you may have a desire to invest in.

    View all posts

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