Will Facebook's Stock Recover From Its Latest Controversy?

It is hard to find a positive word about Facebook FB, possibly for a good reason.

As the dominant social media platform, it has experienced its fair share of controversy and accusations of impropriety since its inception in 2004. Controversies that readily come to mind include misusing user data and helping bad-faith actors interfere with US elections. The latter accusation may be a little tenuous. nonetheless, I’m firmly in the camp that believes that the world would be better off without the platform existing. It appears that Facebook’s own research may back up this assertion, as revealed by data scientist and former Facebook Product Manager turned Whistleblower, Frances Haugen.

Facebook’s latest controversy

Haugen left Facebook in May 2021, but not before scanning thousands of pages worth of documents pertaining to internal research the Company had conducted. The research purports to acknowledge the harm that Facebook and its family of apps cause to its youngest user’s mental health, in addition to its use in spreading misinformation (npr, 2021). This research was not openly disclosed.

Haugen spent Wednesday testifying in front of US congress and called for policymakers to consider regulating Facebook. Since 2018, Haugen argues, Facebook’s algorithm has prioritised a newsfeed that is dangerous, inflammatory, and yields unhealthy side effects (nytimes, 2021).

It could be that Haugen’s whistleblowing will strengthen policymakers’ resolve to regulate Facebook.

Will the Securities and Exchange Commission get involved?

Haugen has filed eight whistleblower complaints with the Securities and Exchange Commission (SEC) (cbs, 2021). As a publicly listed Company, Facebook owes a duty of care to its investors to disclose information relevant to its performance. Arguably, the results of its internal research should have been disclosed, or at the very least, the Company should not be misleading the public about its progress to combat its harmful offshoots or omitting what its research shows to be true. This is what Haugen’s expose has revealed to the SEC (cbs, 2021). If the SEC proceeds with opening a case in relation to Haugen’s allegations, FB Stock may experience a material impact.

Did FB Stock shrug off another controversy?

On the day that the whistleblower story broke, Monday 4 October, FB stock fell 2.77%. Coincidently, Facebook and its family of apps experienced a 7-hour outage on the very same day that may have heightened investors’ concerns about the stock. Although, to put the 2.77% into perspective, it should be noted that FB Stock experienced very similar and frequent drops over the course September without any obvious causes.

By the close of Wednesday, at the time of writing, Facebook has almost clawed itself back to its Monday opening price. FB stock rose 1.33% on Tuesday and another 1.18% on Wednesday.