Facebook, the social media giant launched in 2004, started as a college project of Mark Zuckerberg. By the end of 2006 anyone with a registered email address was able to register for free and this resulted in Facebook to become a worldwide social networking service company.

Given the uncertainty of current world political tensions, including the trade wars between the USA and China, and the EU’s concern with the Italian budget coupled with the uncertainty of Brexit, it is no surprise that investors are reluctant to invest. Such reluctance is evident in the underperformance of major indices, where from all-time high the S&P 500 declined by 9.0%, the NASDAQ declined by 12.5% and the FTSE 100 declined by 11.1%.

Facebook’s share price has declined by 37.3% since all-time high, which is considerably higher than the decline of 12.5% in the NASDAQ, being one of the indices where it is listed.

Such significant decline is attributed to a bombardment of attacks on the company related to the numerous ways the platform has been manipulated to spread false information, lack of information provided by management, a decrease in revenue growth, and various data breaches.

The latest data breach which is also the largest in the company’s 14-year history occurred in end of September, whereby an attack on its computer network had exposed the personal information of nearly 50 million users. With the introduction of new regulations on data protection, such as the EU General Data Protection Regulation (GDPR), it is time for Facebook to give more importance to its security and operations, and give users assurance about the security of their personal data.

In addition to the security of users, investors are also worried about the continuous decline in the operating margins of the company which stood at 46% for Q1 of 2018, declined to 44% for Q2 of 2018 and experienced another decline to 42% for the latest published Q3 earnings.

The net margin has also declined in line with the operating margin, whereby it stood at 42% in Q1 of 2018, decreased to 39% in Q2 of 2018 and declined further to 37% in Q3 of 2018. Facebook said that the diminishing margins are attributable to the company spending heavily on security and initiatives.

This brings into question if such increase in security costs is generating returns to the shareholders, in view of the major data leak of 50 million users as described above.

One of the first steps for Facebook to regain investment confidence is for Zuckerberg to forfeit the role of a chairman and enable the board of the company to act independently and provide the necessary oversight that investors look for. Currently, Zuckerberg owns 60 percent of the voting shares, and acts as both CEO and chairman.

This might change following a shareholder proposal for Facebook to have an independent chairman, which will be voted for in the next shareholder meeting of 2019. Thus far, Zuckerberg has rejected such proposal, however the persistent sell-off might persuade him otherwise.

Despite the current decline in Facebook’s share price it might not be all over for the social giant. With strategic acquisitions such as Instagram in the past, Facebook can keep abreast with market trends, thereby sustaining and potentially growing its revenues.

Facebook growth potential cannot be ignored, considering that Facebook Group, which among others includes Instagram and WhatsApp, owns the vast majority of the social media space.

As with every other technology Facebook won’t last forever, technology is constantly evolving and so are people’s preferences. In order for Facebook to retain and attract internet users, it must continuously diversify and alter its product range, hence coming up with new ideas that are embraced by the market.

This article was issued by Rowen Bonello, research analyst at Calamatta Cuschieri. For more information visit, www.cc.com.mt. The information, view and opinions provided in this article are being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice.