Facebook (FB) has dominated the financial news cycle over the past weeks pursuant to its relationship with Cambridge Analytica, a political consulting firm with ties to Steve Bannon. Cambridge did digital work for Donald Trump’s 2016 presidential campaign. Apparently, the firm obtained private Facebook data to target millions of its users for ads promoting Trump:
The New York Times and Observer reported last week that Cambridge obtained private Facebook data — specifically, information on tens of millions of Facebook profiles — from an outside researcher who provided it to them in violation of his own agreement with Facebook.
Meanwhile, Channel 4 News in the UK has posted video in which Cambridge CEO Alexander Nix says his firm conducts dirty tricks such as trying to tape its candidates’ opponents accepting purported bribes or sending “some girls around to the [opposing] candidate’s house.” As a result of these reports, Cambridge announced Tuesday afternoon that it would suspend Nix pending an investigation.
Ties to Cambridge have raised legal and ethical concerns about who has access to consumers’ private data and what it is being used for. FB is down over 15% over the past month, largely due to the Cambridge dust up. Below I will parse through the dust up and explain what it means for FB investors.
The Dust Up Is At The Heart Of Facebook’s Business Model
The Cambridge debacle strikes at the hear of Facebook’s business model. It also forces investors, consumers and potentially, lawmakers, to become more thoughtful about it. CEO Mark Zuckerberg’s ability to collect data, analyze it and package it in a way to target advertisers is at the core of Facebook’s business model. In Q4 2017 Facebook generated nearly $13 billion in revenue – 99% of that represented advertising dollars. In the past there may have been some confusion over whether Facebook sold data to third parties. Edward Snowden also brought this to the public’s attention.