If you are following Facebook (NASDAQ: FB), you are likely wondering if the bad news will keep on coming, or if the storm has passed. Even if more information about data breaches and other violations of privacy are revealed in the days to come, no one will be surprised. The question is whether the bad news represents a buying opportunity or if it is an indication the time has come to sell.
Facebook’s Temporary Rebound
Facebook’s stock bounced back after its initial decline following the Cambridge Analytica saga. The fact that Facebook halted 200 apps due to data tracking is salt in the wound. Those who used Facebook on Android smartphones were monitored in a manner similar to that of Big Brother surveilling Winston Smith in George Orwell’s novel 1984.
However, the breach of trust does not mean people will flee Facebook. The social media giant does not have a legitimate rival. Though Twitter and Instagram allow for the sharing of pictures, videos and messages, Facebook has managed to maintain a strong following.
Those who perform technical analyses of stocks are growing more bearish on Facebook with each passing day. Do not be deceived by the fact that Facebook shot right back up after its 19 percent decline following the Cambridge Analytica fiasco. Take a close look at the charts, and you will find Facebook’s 50-day moving average is dipping below its 200-day average. If trends hold true, such movement is an indication Facebook’s stock is headed for a fall.
Some analysts believe Facebook will mimic Equifax in terms of the initial sell-off, followed by a considerable rally and subsequent downswing. Though Facebook has not spiked back to new highs, investor should be worried.
What About Facebook’s Recent Announcement of a Blockchain Division?
Wall Street analysts were taken aback by Facebook’s announcement of a blockchain division. Those who understand cryptocurrencies like Bitcoin are adamant the blockchain technology that powers such alternative currencies will prove useful for all sorts of purposes. The question is how blockchain will be leveraged across the social media platform. Some wonder if investing in Facebook is a low-risk means of investing in the blockchain. After all, many investors are afraid putting their money in Bitcoin as governments could easily quash it along with other cryptocurrencies in a moment’s notice.
The blockchain is gaining momentum in an all sorts of industries ranging from the automotive sector to insurance, food logistics, banking and beyond. Facebook will likely play an important role in helping the blockchain hit a mainstream tipping point yet there is a question as to whether the incorporation of this emerging technology will make a considerable difference in Facebook’s bottom line.
If you are adamant in believing that blockchain will revolutionize economic activity, hold your position in Facebook. However, the mere prospect of implementing the blockchain technology into the Facebook platform is not enough to justify a substantial investment in the social media giant.
Consider a scenario in which Facebook merely uses the blockchain to help users identify the source of news in order to separate real news from fake news. This technology will likely empower Facebook users to establish rules for who is permitted to view information tracked by the blockchain. If this is the extent of Facebook’s use of blockchain technology, it does not warrant a sizable investment. Alternatively, if Facebook uses the blockchain to launch a new cryptocurrency, the stock will likely increase by a considerable margin.
Facebook has more than 2.2 billion users. If even a small portion of those users hop on board with a new cryptocurrency, it will likely build momentum and steal market share from the likes of Bitcoin and Ethereum. What remains to be seen is how governments around the world will regulate or possibly even ban such cryptocurrencies.
Do not Put Your All of Your Faith in Facebook
If you own Facebook, consider selling a small portion of your stake. If you have been waiting on the sidelines, do not assume the recent scandals have created a buying opportunity.
To say Facebook investors are anxious would be an understatement. If more scandals emerge, those who bought on the recent downswing will not hesitate to unload some or all of their Facebook shares and move on to the next stock that piques their interest. Though it is true Facebook’s most recent earnings were better than expected, there is a massive black cloud hovering over this tech monolith.
Hold off on investing in Facebook for the time being. If the stock eventually dips down to $165 or lower, consider adding a stake to your portfolio and holding for the long haul.
Regards,
Ethan Warrick
Editor
Wealth Authority
