Facebook, Inc. FB hit headlines once again, that too for wrong reasons. Jan Koum, co-founder and CEO of WhatsApp, the popular messaging service owned by Facebook, said on Monday that he is quitting the company.
Although the exact reason behind Koum’s exit is unclear, reports say that the decision is the outcome of his alleged clash with the parent company over WhatsApp’s user data privacy and weakened encryption. Koum’s decision to leave Facebook comes seven months after WhatsApp co-founder Brian Acton left in September 2017.
In fact, Acton raised a storm in March when he tweeted that everyone should #DeleteFacebook. Facebook has been reeling under pressure for quite some time now. After touching record highs in January, the social media giant’s shares took a hit in March after it got embroiled in a data misuse scandal that affected personal information of millions of users.
Since then, Facebook’s CEO Mark Zuckerberg has been leaving no stone unturned to salvage the image of his company, and even gave a two-day-long testimony in front of Congress and U.S. lawmakers.
However, despite multiple acquisitions including fake news and revelations of the Russian election manipulation, Facebook still seems to be a favorite with investors. The social media giant’s recently announced quarterly results prove that amid all allegations and controversies, it is still going strong and has been a key driver of the technology space.
Data Scandal Takes Its Toll on Facebook
In early March, news of data analysis firm, Cambridge Analytica, unethically harvesting Facebook’s user data came to light. The company was accused of unethically using more than 80 million users’ personal data, and Facebook saw its market capitalization erasing by $100 billion in just a week.
What’s worse is that it led to a bloodbath in the highly-appraised technology space. With Facebook at the helm of the carnage, other FANG stocks, Amazon.com, Inc. AMZN, Netflix, Inc. NFLX and Alphabet Inc. GOOGL took a hit on fears of a possible regulatory clampdown.
Zuckerberg since then has been going all out to save his company’s image, starting from publishing apologies in newspapers to even testifying in front of Congress. In fact, this was the first proof of investors still having immense faith in Facebook, as the company’s shares surged immediately after the testimony.
Koum Departs Amid Privacy Scandal
Koum’s departure from WhatsApp and Facebook comes at a time when the company is still in the process of rebuilding its lost image. Apparently, Koum’s parting ways with the social media giant is a result of difference of opinion related to WhatsApp’s user data privacy and weakened encryption. Koum and Acton, the founders of WhatsApp sold the messaging app to Facebook for $19 billion in 2014. However, Koum and Acton both continued to serve the company as employees, till Acton left WhatsApp in September 2017.
Interestingly, at the time of acquisition, Facebook had assured that WhatsApp would be an ad-free service and won’t be required to merge its data with Facebook’s. Since then, WhatApp’s user base has tripled to 1.5 billion, making it one of the most popular messaging apps.
Although the exact reason behind Koum leaving the company is not known, speculation is rife that it may be because of a disagreement over user data privacy. WhatsApp, unlike Facebook, stores the encrypted messages on the smartphones of users and not on the company’s servers. Understandably, the data privacy issue fails to leave Facebook and Koum’s decision to quit has raised quite a few eyebrows.
Facebook Still on Solid Ground
That said, despite reeling under pressure of data privacy, Facebook continues to be a winner, as is reflected from its recently released quarterly results. Facebook was the unmatched leader of the tech sector and a market driver in 2017, and this year is no different. The data misuse scandal may have dented its image somewhat, but the company continues to be a strong performer.
And that shows in its Q1 results, wherein the company reported earnings of $1.69 per share, up 63% from the year-ago quarter. Importantly, Facebook also crushed the Zacks Consensus Estimate of $1.36 per share. Also, the company’s revenues of $11.97 billion handily beat the Zacks Consensus Estimate of $11.45 billion and surged 49% from the year-ago quarter.
And if that wasn’t enough, Facebook’s advertising revenues soared 50.1% year over year to $11.795 billion, while mobile ad revenues surged 60% year over year to $10.7 billion, contributing 91% to total ad revenues. Facebook has a Zacks Rank #3 (Hold). You can see the complete list of today's Zacks #1 Rank stocks here.
Moreover, Facebook still seems to enjoy equal popularity with users. The social media platform’s daily and monthly users globally crossed 1.45 billion and 2.20 billion, respectively. This reflects a 13% year-over-year increase in its user base. Understandably, despite being under fire from all quarters ever since the data misuse allegations surfaced in mid-March, Facebook’s performance seems to have been least affected.
Summing Up
Given this scenario, where Koum’s decision to leave WhatsApp might yet again raise doubts in the minds of investors, Facebook with its robust quarterly results has already proven the solid ground on which it stands. Moreover, the huge jump its user base is testimony that people still have immense faith in the company. Also, the fundamentals which powered the ascent of Facebook remain firmly in place, thus making it a favorite with investors.
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