Facebook stock is on the verge of tipping into a bear market, and with regulators in the U.S. and Europe vowing to take action against the company investors shouldn’t expect it to recover anytime soon.
On a day in which the Dow Jones industrial average surged around 670 points, Facebook stock briefly plunged as much a 6%, when the Federal Trade Commission said it was investigating the company’s data practices, after social media giant failed to protect the data of as many as 50 million of its users from a political analytics firm.
“The FTC takes very seriously recent press reports raising substantial concerns about the privacy practices of Facebook,” acting director Tom Pahl said in a statement.
Meanwhile, Cook County, Ill. announced it was suing Facebook and the political research firm Cambridge Analytica for violating Illinois fraud laws and Germany’s justice minister Katarina Barley warned that going forward, “we will have to regulate companies like Facebook much more strictly,” Barley told Reuters.
Despite a late rally Monday afternoon, Facebook stock is still down about 13% since the news broke a little more than a week ago and nearly 20% from its all time high of $195.32 a share in February. A 20% decline is generally considered to signal a bear market. Market observers say investors shouldn’t assume a quick bounce back. Scott Devitt, an analyst with the equity research firm Stifel, said that Facebook probably “has a long road ahead of rebuilding credibility with users, society, politicians, and regulators.”
Even if the company is successful at limiting regulations, Stifel predicts the stock will only climb to $168 over the next 12 months, which is still around 15% below where it was in early February.
To be sure, some analysts view this scandal as a potential buying opportunity for the stock, since the company’s financial results continue to look strong. But Argus Research analyst Joseph Bonner, who rates the stock a “buy,” concedes that the scandals “could hurt user growth.”
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Bonner said “a user backlash, if it develops, would be the most serious risk for Facebook.”
On that front, users, celebrities, and Silicon Valley leaders — including Apple CEO Tim Cook — have been critical of Facebook in the days after this scandal broke. And the #DeleteFacebook movement got a huge lift late last week when Tesla and SpaceX chief executive Elon Musk deleted the Facebook pages for both of those companies.