Social media giant Facebook Inc. (FB, Financial) remains a buy despite recent data breaches and privacy concerns.
Investors remain confident in the company even after Facebook confirmed reports that it stored some user data in plain text. UpGuard’s Cyber Risk team announced that 540 million records were stored on an exposed cloud server.
The content and privacy concerns would impact most businesses, causing stock prices to plummet. Facebook, however, is up over 4% since April 1, with no signs of the data leak impacting investor confidence.
The company is also facing backlash over political ads that may be used to sway elections. It has responded by blocking foreign ad buying during Australia’s elections. Using new controls on the advertising platform, foreigners are prohibited from buying ads that mention political parties.
The social media giant also vowed to take on fake news.To stop the spread of disinformation, Facebook plans to introduce a fact-checking tool that will survey all political ads and news posts. Sensational stories will be targeted and fake accounts will be removed faster than in the past.
How is Facebook able to not only weather the storm, but actually see stock gains?
The company’s portfolio of products allow it to withstand continual privacy concerns. Instagram, which is owned by Facebook, has continued to impress investors with fast growth in active monthly users and revenue. The platform recently introduced a checkout feature that allows brands to sell products directly on Instagram.
Partnering with PayPal Holdings (PYPL, Financial), Checkout breaks away from the friction of purchasing between social media platforms and e-commerce sites. Technical difficulties cause many of these transactions to fail, but the new feature allows users to make purchases directly in the app. Deutsche Bank predicts the feature will be worth over $10 billion by 2021.
The platform removes the hurdles that many companies face to advertise on Facebook effectively. Advertisers are expected to pay 5% - 15% more for ad prices, while Instagram is able to capture additional user information in the process.
Instagram’s growth remains solid, with over 1 billion monthly active users, offsetting fears of Facebook's growth slowing.
The company’s video strategy remains a concern as it has failed to produce enough unique content to impact investors. The strategy remains undeveloped and will continue to be a focal point for investors for the remainder of the year.
Facebook’s data breaches remain less of a concern for investors as Instagram’s growth continues to rise and has the potential to earn an additional $10 billion annually.
Disclosure: The author has no stakes in the listed equities.
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