All this fuss about the Cambridge Analytica scandal, other assorted data breaches and the improper use of personal information harvested by Facebook have led to speculation that the company is somehow in jeopardy. Much of this is of course, a pandering media frenzy caused by the linkage of Facebook to the Russian election meddling story, but is there anything for investors to really worry about? The quick answer is: In the short term a little bit but in the long term not much at all. A quick discussion of some of the key issues explains why we have come to this conclusion.

In general the media thrives on making something old sound new again. It makes for good headlines. Facebook is primarily a medium where people give up a certain amount of their privacy. It is what the whole thing is all about. Going back to the beginning of the internet age there was repeated questioning about the threat to privacy caused by the key question of the very internet business model itself: Are you willing to sacrifice some privacy and allow your usage to be profiled so you have mostly free access to all the information and knowledge in the world? The answer has always been a resounding and almost universal YES! Without a public outcry there is little chance of any meaningful backlash or threatening regulation that will hurt their business. So far what we are seeing is a media outcry. In fact if various governments introduce regulations that demand better safeguards to the use of Facebook mega data they will be doing the company a public relations favor. Besides, the government (Big Brother) has ultimate access to all the information harvested by Facebook and all the rest. The Facebooks of the world are doing a big chunk of their dirty work. Don’t expect Homeland Security to be lobbying for any meaningful regulation other than that which preserves their back channel access.

A second issue recalls another aspect involving historical amnesia by the media. Companies and political parties have been “hacking, manipulating and influencing private data” for a couple hundred years going back to the days of Political Pamphlets and Farmer Supply catalogues. In co-ordination with partisan newspapers there was some fairly sophisticated demographically targeted “Fake News” going on a long, long way back in time. Facebook is by far the biggest aggregator of news the world has ever seen and ,while hard to measure exactly ,they have eroded viewership of all traditional media sources significantly. We get the sense that this outrage by the traditional media is partly an attempt to promote general outrage. It will be interesting, and watched very closely, when Facebook releases its’ user data in the coming months.

What is of most concern in the short term is additional “scandals” about the third party uses of harvested data. Given the scrutiny that the company is presently under we do expect this to be likely. Here again, while most people, don’t know the exact details and extent to which Facebook profiles and sells its user data we expect that any new scandals will be largely greeted with a shrug. That is unless they are too numerous and brutal in nature.

Zuckerberg survived his recent grilling in Washington but new privacy regulations are coming in Europe and eventually in America. The big question is how this will affect advertising revenue?Since Facebook dominates the online add business we think it will affect them very little. They have profiling algorithms within algorithms and while it may make it more complicated to make their case to customers about the efficacy of targeting select groups we believe they have the expertise to do it regardless of any new regulations.

Alfred G. Engelbrecht, Senior Research Fellow, Elmont Group