Is it time for investors to log out of Facebook?

While Facebook users have been shutting down their accounts, following the company’s data privacy controversy, fund managers have also been deleting it from their holdings.

‘We sold our entire holding in Facebook a few weeks ago,’ says James Thomson, fund manager at Rathbone Global Opportunities fund. This sell-off was the largest trade in the fund’s history.

‘We feel the bombardment of advertising and the exploitation of personal data are polluting the appeal of Facebook,’ explains Thomson. ‘In its pursuit of profit, Facebook is losing its consumer trust.’

Since the controversy broke, Facebook’s share price has tumbled. Between 16 March and 6 April, the company’s share price fell by just over 14 per cent. For early backers such as Thomson, however, even selling into this falling market will provide strong returns. Thomson purchased Facebook in 2013 – over those five years the company’s share price has surged by over 550 per cent. 

Thomson, however, believes that further falls are likely. 'Evidence of Facebook fatigue will be unmasked if there is a marked deterioration in its time spent and engagement metrics,’ he says. ‘Perhaps advertisers might start to question the integrity of its advertising reporting data.’

This would trigger a ‘crisis of confidence’ in the firm, causing the stock to crater, believes Thomson. He adds: ‘Facebook has to decide between rebuilding trust with users or protecting profits for shareholders; it can’t do both.’

Short-term events also present a considerable risk for Facebook shares. Facebook’s CEO Mark Zuckerberg is due to testify before US Congress later in April. Rather than calm selling pressure, says Thomson, his testimony may further reduce investor confidence. ‘His responses so far have come across as robotic, repetitive, and unsympathetic,’ says Thomson. And politicians ‘will hound him with the same question…why has no one been fired from Facebook for this disaster?’

‘The bottom line is if social media pushes too hard on advertising or making money out of them, users get turned off. We think it’s prudent for us to steer clear for now,’ adds Thomson.    

Nor is Thomson the only one concerned about Facebook. Walter Price of Allianz Technology Trust reduced his holding in Facebook earlier this year, primarily on the potential for increased data regulation. Price says he ‘felt that investors were being too complacent about privacy.’ Further, he says, since the latest controversy, ‘our team has observed a noticeable impact in newsfeed engagement following the recent changes made to the sites algorithm.’  

However, Facebook isn’t completely out of the Allianz Technology Trust portfolio, and Price is not as bearish on the company’s future prospects as Thomson.

Price believes that despite the public relations disaster and potential regulatory changes, the company’s fundamentals are still strong. ‘We continue to hold shares in Facebook because,’ says Price. ‘Despite the near-term issues, it is still by far the best targeting system for advertisers and has a significant advantage in terms of measurable ROI over its competitors.’

-Alastair Mundy: There’s a shortage of ‘good value’ cheap shares

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