Facebook’s ability to manage the latest crisis over alleged data breaches will ultimately determine its long-term future, according to an analyst at Goldman Sachs.
Facebook was the worst-performing stock in the S&P 500 on Monday, posting its biggest one-day decline since March 2014. This followed reports over the weekend that said political analytics firm Cambridge Analytica was able to collect data on 50 million people’s profiles without their consent.
The London-based company worked on Facebook ads with President Donald Trump during his election campaign in 2016, where it provided details on American voters. But the data allegedly held by Cambridge Analytica was not used in the 2016 Trump presidential election campaign, the company claims.
Facebook has come under fire for its role in the scandal and has been accused of a data breach.
“It certainly introduces a level of uncertainty that we haven’t seen with Facebook before,” Heath Terry, lead internet research analyst at Goldman Sachs, told CNBC on Tuesday.
Terry explained that every fast-growing tech giant was likely to face a similar crisis, before singling out the so-called click fraud scandal which threatened Google‘s growth prospects in recent years.
“That’s going to be the same here for Facebook. It’s going to be how they manage through this that will ultimately determine their long term future,” Terry said.
Goldman Sachs has a “buy” rating on Facebook’s stock.
Prior to revelations in recent days about the potential misuse of Facebook data, U.S. lawmakers had already grappled with social media platforms’ growing political influence and whether it would be necessary to impose more stringent regulatory measures.
Goldman Sach’s Terry said that while heightened regulatory measures regarding online political ads were now inevitable, the prospect of significantly onerous regulatory measures would be “something we have got to watch.”
When asked whether such measures could then impact the growth story of Facebook, Terry replied: “Certainly.”
The media firestorm surrounding Facebook and Cambridge Analytica comes after Britain’s Channel 4 News carried out an undercover investigation into the London-based political data firm. Undercover filming appeared to show senior executives suggesting the firm could use sex workers, bribes, ex-spies and fake news to help candidates win votes around the world.
The Channel 4 News investigation, broadcast Monday, comes after articles published by the New York Times and U.K. newspaper The Observer, showed how the data of millions of Facebook profiles ended up being given to Cambridge Analytica.
Academic Aleksandr Kogan and his company Global Science Research created an app called “thisisyourdigitallife” in 2014. Users were paid to take a psychological test and the app collected the data. It also gathered data on a person’s Facebook friends, according to British newspaper The Observer and The New York Times.
In this way, 50 million Facebook profiles were mined for data. Kogan then shared this with Cambridge Analytica, which allowed the firm to build a software solution to help influence choices in elections, according to whistleblower Christopher Wylie, who revealed the alleged practices to both newspapers.
Both Kogan and Cambridge Analytica have denied wrongdoing in regards to the reports in The Observer and The New York Times.
In a company statement, Cambridge Analytica said the Channel 4 News investigation had “grossly misrepresented” the conversations caught on camera.
“In playing along with this line of conversation, and partly to spare our ‘client’ from embarrassment, we entertained a series of ludicrous hypothetical scenarios,” it said.
“Cambridge Analytica does not condone or engage in entrapment, bribes or so-called ‘honeytraps’,” the firm added.
