The Grizzle Reel and Macro Battleship have been markedly negative on the social media trade for the last two months, we viewed valuations as stretched and saw regulatory risks on the horizon. With the revelation of the massive Facebook data breach over the weekend the risks are now front and centre.

Facebook stock has sold off over 11% since the news broke, undoing all the YTD gains. Some punters are viewing the stock as deeply sold off, over the near term perhaps, however over a 5-year period Facebook is still up 535%.

Facebook Stock Price

Source: Yahoo Finance

The Cyber Punk(ish) Whistleblower’s Impact on Facebook Stock

Watching the Channel 4 spectacle of Christopher Wylie spilling the beans on the entire scope of the Cambridge Analytica data siphon was absolutely mind-blowing. It’s clear he’s quickly morphed his persona from a khaki wearing humble Steve Bannon data servant to a cartoonish whistle blower cyber punk.  Wylie revealed to the Observer:

We exploited Facebook to harvest millions of people’s profiles. And built models to exploit what we knew about them and target their inner demons. That was the basis the entire company was built on.

What makes the scheme a black hole for Facebook stock is the backdoor method that was used to access the private data of 50 million users. About 270,000 people were paid a few dollars to participate in an ‘academic’ survey.

Cambridge Analytica was then able to balloon the user scope to 50 million by exploiting the weak Facebook privacy safeguards for the friends of 270,000 actual participants. The default Facebook privacy user settings were simply that porous and weak, as they were intentionally designed to be. This is what regulators will sink their teeth into, and this is what exposes Facebook’s share price for more headline punishment ahead.

Source: Twitter

#DELETEFACEBOOK Not a Good Look for a Social Media Stock

To state the blatantly obvious, a trending hashtag movement explicitly encouraging users to delete their Facebook accounts is not the kind of viral media attention the company is seeking. Growth stocks don’t lose users, period.

Source: Twitter

Crisis Manual Missing — Zuckerberg and Sandberg MIA

This episode has been an absolute face plant for the company — the crisis manual has apparently gone missing. Something this damn messy requires management to address the issue bluntly and reassure investors that the ship remains steady. We’re well into day 4 of this shit storm with no calming management statement to be found.

The market gets that Mark Zuckerberg is absolutely awful at PR. He’s been coached by the best for over a decade and still comes across as mildly sociopathic. COO Sheryl Sandberg on the other hand is made for this, she’s a natural presenter who can thrive in these kinds of pressure cooker moments.

The fact that Sandberg hasn’t stepped up to the plate as yet is an absolute tell on how bad this crisis really is. Every hour that passes adds that much more speculative fodder for Facebook bears.  

We are not buyers of the dip.