Height Capital Markets: Fed's Broader Facebook Data Privacy Investigation Unlikely To Create New Material Risk

The Washington Post reported Monday that the Justice Department is broadening its investigation into Facebook, Inc. FB’s data practice; the FBI, SEC and FTC are now involved. 

Another round of negative headlines was weighing on Facebook shares on Tuesday, and investors need to know the risk to Facebook’s bottom line.

The addition of three federal agencies to the investigation won't necessarily expand the material impact on Facebook, according to Height Capital Markets. 

“At first blush, we believe the broader investigations into Facebook by the Department of Justice and the FBI will focus narrowly enough on the Cambridge Analytica scandal that we think these inquiries will not result in new, material penalties,” Height said in a Tuesday note. 

The Height analyst team said it is their understanding that Facebook didn’t violate any U.S. laws in its data handling, but that doesn’t mean the company's safe from additional fines.

“The company likely violated the terms of its consent decree with the Federal Trade Commission, and for this we expect the FTC will fine the company roughly $5 billion,” the Height analysts said. 

A $5-billion fine would represent roughly $2.08 per Facebook share. Last quarter, Facebook reported just $1.69 per share in EPS, so it’s understandable why investors would be concerned.

So far this year, Facebook’s booming business has helped the market shrug off negative privacy headlines, but a $5-billion fine is likely to get the market’s attention.

Facebook shares were slipping 2.35 percent at the time of publication Tuesday afternoon. 

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