Get the investor scoop on a scandal-heavy week involving Facebook, cryptocurrency, and Aussie banks. What does it all mean for investors?
1. Facebook’s data nightmare
Facebook’s share price suffered a sharp fall after concerns and backlash increased over the company’s harvesting of user data. This followed mounting reports regarding Cambridge Analytica’s use of data from 50 million Facebook user accounts, which was allegedly acquired deceptively.
What does this mean if you’re invested in Facebook?
This is not a simple case of sloppy security and user data being hacked. It relates to user data being provided to third parties, perhaps without sufficient privacy protocols in place.
For Facebook shareholders, there are two key concerns – both of which may impact the company’s growth prospects.
Firstly, whether some Facebook users may stop using the platform due to privacy concerns. Secondly, whether governments might start imposing more stringent privacy regulations on tech giants like Facebook.
Our investment team believes the spate of recent data breaches within social media may lead to tighter regulation of the industry.
While we believe Facebook will need to stamp out bad actors on its platform, we don’t believe there will be any meaningful downside risk to earnings growth.
2. Cryptocurrency bans extend to tech giants
The tech giants – namely Google and Facebook – have led the way in banning cryptocurrency advertising on their platforms.
Google is the latest ad company to join in on crypto crackdowns, and reports have surfaced since indicating Twitter is planning to follow suit.
What does this mean if you’re invested in tech stocks?
A Google representative cited seeing enough consumer harm or potential consumer harm from cryptocurrencies as the reason for the ban. From a reputation and potential liability perspective, it makes a lot of sense for the large tech giants to ban cryptocurrency advertising.
If the cryptocurrency bubble bursts, and Google, Facebook or Twitter were seen to have profited hugely from cryptocurrency advertising – it would be a PR disaster for all of them.
This type of self-regulation is an important move by the tech giants, particularly with various governments around the world working on how to best regulate them.
We believe both Google and Facebook will continue to impose advertising restrictions on their respective platforms. The online advertising market is growing fast enough that selected advertising censorship by Google and Facebook is unlikely to dampen their future growth prospects.
In fact, we think it’s good risk management.
3. Banking royal commission unearths scandal after scandal
The Royal Commission into misconduct in banking, superannuation, and financial services is off to a disturbing start. It has already revealed embarrassing and downright questionable activities by the major banks.
The wrongdoings uncovered so far have ranged from offering overdrafts to people who can’t afford it, and conflicts of interest with mortgage brokers, through to selling insurance to customers who can never claim on the insurance.
One bank has even been caught out for failing to provide emails it was asked to put forward as part of the inquiry.
What does this mean if you’re invested in Aussie banks?
It could be an uncomfortable time for Australian bank shareholders during the Royal Commission. In the short term, any significant revelation that puts a bank at risk of a material financial penalty could negatively impact that bank’s share price.
The problems could compound in the long term. We believe there will be building political pressure to increasingly regulate how the banks make money.
Bank shareholders should pay close attention to the final recommendations from the Royal Commission; they’ll act as a window into potential future regulations that could hamper Aussie bank profits.
Given the royal commission is just getting started, more troubling details of misconduct will likely come to light – further reinforcing our view some major players in the financial services sector don’t always have their customer’s best interest at heart.
In the past, customers haven’t had access to an alternative service provider as banks were the only players in town. Nowadays, technology is allowing nimble, customer-focused firms to compete with big banks. We are excited to be part of this fintech revolution.
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Kent Kwan is a co-founder of AtlasTrend. He was formerly a Chief Investment Officer of an ASX listed company and prior to that was an international equities fund manager with JPMorgan.