A scandal involving the mishandling of Facebook Inc. user data by an app developer and other third parties rocked the technology sector during the volatile trading week ended March 23.
The S&P 500 fell by about 6% for the week, weighed down by tech losses but also by the reaction to broader political and trade news. While investors grappled with overall concerns about a potential U.S. government shutdown and new tariffs, Facebook saw some investors back away from the company amid fears of regulatory backlash following its user data scandal.
Facebook's stock has tumbled by nearly 14% since March 16, the day it disclosed that the company had suspended the accounts of British company Strategic Communication Laboratories and its political data analytics firm Cambridge Analytica LLC, among others, for violating the platform's personal data policies. Facebook said it learned that data voluntarily provided through a personality test app created by University of Cambridge Professor Aleksandr Kogan had been improperly passed on to third parties including Cambridge Analytica, which does work for political, government and military clients around the globe.
Shortly after the news broke, several lawmakers in the U.S. and Europe called for investigations into the incident. The U.S. Federal Trade Commission also reportedly opened an investigation into whether Facebook's sharing of information with Cambridge Analytica was a violation of a previously agreed to consent decree between the FTC and Facebook.
After days of scathing headlines noting Facebook CEO Mark Zuckerberg's lack of comment on the data scandal, Zuckerberg wrote in a March 21 Facebook post that his company had made mistakes regarding user privacy and outlined various steps Facebook plans to take to restore users' trust. These include more transparency about which apps have access to individual users' data and more limitations on how much data is accessible to app developers from the start.
Following news of the data scandal, several analysts said the incident created "headline risk" but predicted it would have limited impact on Facebook's near-term ad revenue. Pivotal Research Group analyst Brian Wieser said he saw the episode as further evidence "of systemic problems at Facebook" that ultimately increase the risks of regulation. He maintained a "Sell" rating on the stock with a $152 price target.
Facebook's stock dropped nearly 7% March 19, the stock's largest one-day percentage decline in roughly five years. The company's shares ended March 23 trading at $159.39, down from their March 16 closing price of $185.09.
Social media giants Twitter Inc. and Snap Inc. also saw their shares slide during the week. Twitter's stock price ended the week at $31.03, down almost 13% from its March 16 closing price. Snap's shares closed March 23 at $16.36, down about 4% for the week.
Bloomberg News reported March 20 that Israel Minister of Justice Ayelet Shaked has warned that the Israeli government is considering legal action against Twitter for failing to take down online content that incites or supports of terrorism. Shares in Twitter closed down more than 10% March 20 alone.
Elsewhere in the media and telecom space, shares in AT&T Inc. and Time Warner Inc. saw movement as opening arguments got underway in the U.S. government's antitrust lawsuit against AT&T's proposed purchase of Time Warner. The Department of Justice is arguing that the combination of AT&T and Time Warner's assets would give the resulting entity too much power in the pay TV and online video marketplace, ultimately leading to higher prices, a claim AT&T has disputed.
According to The New York Times, the Justice Department's lead lawyer argued that American consumers would be "worse off" as a result of the deal, while AT&T and Time Warner lawyers said the combination would allow the resulting entity to compete with tech giants such as Amazon.com Inc., Netflix Inc., Alphabet Inc. and Facebook, which dominate the streaming video and online advertising markets.
The trial is set to last up to two months. AT&T's shares ended March 23 at $34.70, down over 6% from their March 16 closing price, while Time Warner's shares closed the week at $92.57, down roughly 4%.
Meanwhile, San Francisco-based file-sharing and cloud-storage company Dropbox Inc. priced its initial public offering of 36 million shares of its common stock at $21 per share, above the estimated price range of $18 to $20 per share. Shares in the company began trading March 23 on the Nasdaq Global Select Market, reaching as high as $31.60 before closing for the day at $28.48, up roughly 36% from the IPO price.