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Facebook Stock’s Familiar Crisis Cycle: Decline, Rebound, Repeat

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(Bloomberg) -- Facebook Inc.’s shareholders had a rough start to the week, facing an unprecedented global outage of the company’s sites and a damaging interview by a former insider turned whistle-blower that sent the stock down nearly 5% on Monday.

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But as is often the case with Facebook, the dip didn’t last long. The stock rebounded 2.1% Tuesday -- despite that same whistle-blower appearing before a Senate subcommittee, claiming the company routinely puts its own profits before user safety. The testimony was powerful enough for Senator Ed Markey, a committee member from Massachusetts, to threaten Facebook’s co-founder and chief executive officer with regulatory control.

“Here’s my message for Mark Zuckerberg: Your time of invading privacy, promoting toxic content, and preying on children and teens is over,” Markey said. “Congress will be taking action.”

Facebook is also contending with a broader pullback among tech stocks, with investors growing concerned that inflation and raising bond yields could erode the value of future earnings. But if past episodes are any indication, the cloud over Facebook’s shares won’t linger.

Here’s a look at how Facebook has fared during prior company scandals.

Cambridge Analytica

In arguably the largest scandal in Facebook’s history, an outside researcher collected and then sold the personal data of tens of millions of users to the analytics firm that helped elect Donald Trump President. The revelation set off a series of events, including a formal investigation by the Federal Trade Commission into Facebook’s privacy practices. That probe led to a $5 billion fine a year later.

The stock fell 18% in just over a week starting on March 19, 2018. But it had fully recovered by May 10.

Earnings Disaster

Three years ago, Facebook had its worst single-day stock slide ever when the company uncharacteristically missed earnings estimates for revenue and user growth, fueling concerns that its scandals had finally affected the business. Facebook lost $121 billion in market value following the report, a record for a U.S. traded company at the time.

The stock closed at $217.50 on July 25, 2018, and opened down nearly 20% the next morning. In this case, the comeback took longer. The shares didn’t top $217.50 until January 2020, almost two years later.

Antitrust Probe

In 2019, reports surfaced that Facebook and some of its Big Tech peers would be subjected to U.S. antitrust investigations. The FTC began preparing an antitrust probe into whether Facebook’s practices harm competition in the digital market.

Facebook stock plunged 7.5% on June 3, 2019. It recouped the losses in about a week.

Pandemic Panic

The global pandemic hit all businesses -- not just Facebook -- but the advertising slump triggered by Covid-19 was a direct threat to the company’s core revenue source. Investors feared that businesses would pull back on their marketing budgets, including social-media ads. The concern was overblown: Facebook’s products ended up getting a major boost as stuck-at-home consumers looked for ways to communicate online and businesses sought to reach them.

Facebook stock fell 33% over one month beginning on February 18, 2020, to a pandemic low of $146.01 on March 16. Two months later, it had fully recovered.

Election Chaos

As the 2020 U.S. presidential election drew near, Facebook investors started to get skittish. The company spent a lot of time and energy preparing for any election-night chaos, including fighting voting misinformation, but people were still worried about what had happened in 2016, when Facebook was unknowingly used by Russian agents to try and sway public opinion.

Tensions peaked on Jan. 6 of this year with the U.S. Capitol riot, which some critics said Facebook helped fuel.

After Facebook’s stock price topped $300 for the first time ever on Aug. 26, 2020, the concerns weighed on the shares for months. It didn’t reach that price again until April 5, 2021.

Whistle-Blower and Outage

That brings us to this week. Facebook’s latest scandal cycle was triggered by whistle-blower Frances Haugen, who shared thousands of company documents with regulators and the Wall Street Journal. The documents detailed Facebook’s struggle with moderating its content and the mental-health impact of its photo-sharing app Instagram.

It didn’t help that Facebook also suffered its worst outage in years Monday, emphasizing how vital its services are to users around the world. For some lawmakers, that made an even stronger case for the company to be regulated -- or broken up.

The stock is currently down 3.4% for the week -- and 13% off its record high from September. It’s hard to say how long it may take to climb back to its previous heights this time, but since Facebook’s fundamentals haven’t changed, Wall Street is upbeat. Eighty percent of analysts rate the stock a buy.

“While the past is not indicative of the future, we note the firm has faced similar issues previously with a negligible long-term impact on user growth, advertiser demand and overall financial performance,” Morningstar Inc.’s Ali Mogharabi said in a note.

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