The revelation of Facebook’s (FB) data breach involving Cambridge Analytica was followed by a March 26 announcement that the Federal Trade Commission is investigating Facebook’s ability and willingness to protect user information. While this development may raise further doubts regarding Facebook and its user growth and engagement, along with more demand for EU-type regulation in the United States, we remain confident that the company can endure the short-term impact of the data breach. At this point, we do not expect a significant long-term negative effect on Facebook’s platform and operations.
After conducting a sensitivity analysis based on the various ways that Facebook may be affected, we are sticking with our wide economic moat rating and $198 fair value estimate. While many downside scenarios are in play, we believe that a good portion of any potential downside is priced into the shares today. Facebook’s shares have sunk 18% since March 16 and are now trading at 0.77 times our fair value estimate.
Ali Mogharabi does not own shares in any of the securities mentioned above. Find out about Morningstar's editorial policies.