Facebook stock faces 'serious problems' from whistleblower: Analyst
Following Facebook (FB) whistleblower Frances Haugen’s testimony before the Senate Commerce Subcommittee on Consumer Protection and an outage that prevented users from accessing services, the company’s shares began trading around 3% lower from the previous week on Wednesday.
According to Fitz-Gerald Group Chief Investment Officer Keith Fitz-Gerald, however, Facebook stock might not be as resilient as it has been amid other controversies.
“[Fitz-Gerald Group is] very keen to invest in almost all of the big tech except Facebook,” Fitz-Gerald told Yahoo Finance Live. “Because as the whistleblower alleges, I think the buck stops with Zuck. And there's some serious problems. Because if they are able to prove that they have deliberately misled investors, that is serious litigation time. And I think the stock may not pull out of this one.”
Fitz-Gerald joined Yahoo Finance Live to discuss the latest market action as well as investor sentiment for Facebook in light of the recent controversies. Fitz-Gerald Group is a private market research company which focuses on nonlinear price prediction, stock selection, and investing education.
If litigation does materialize from further developments, Fitz-Gerald believes advertisers may grow wary of the tech giant.
“We'll know when advertisers start to foist, but I’ve got to believe there's going to be some harsh conversations at the boardroom level,” Fitz-Gerald said.
In her testimony, Haugen, a former Facebook product manager, stated that Instagram was addictive to kids “just like cigarettes” and that the company was aware that it was “leading young users to anorexia content.” Her testimony follows her leaking of a multitude of internal Facebook documents revealing the social media platform's knowledge of the spread of misinformation and divisiveness on the site, the negative effects of Instagram on youth, as well as other issues.
In response, Facebook Vice President for Content Policy Monika Bickert told Yahoo Finance on Tuesday that the leaked documents have been mischaracterized and said that Haugen had not worked on any of the issues related to the leaked material.
'The buck stops with Zuck'
Fitz-Gerald said what makes this issue distinctly different from previous Facebook controversies is that the documents released by Haugen suggest that the problems within the company run “right to the very top.”
“Apparently, there is not only evidence backing [Haugen’s testimony] up, but lots of other factoids that haven't yet hit the wires that I'm hearing through the rumor mill," Fitz-Gerald said. "So what this tells me is [that] the tenor of the conversation has changed.”
As for what changes may need to be made in order for Facebook to become a more attractive place for investors in the long run, he said that Zuckerberg would need to step down.
"... What I do know is that Zuckerberg's brilliant, he's a lot of things, but he's not an executive I'd care to invest in right now," Fitz-Gerald said.
Fitz-Gerald believes investors won't have confidence in the company going forward unless Zuckerberg acknowledges the company's mistakes and it "reinvents itself." He estimates that Facebook could potentially triple its value if it “gets back on track.”
“If the allegations are true, and if the buck actually stops with Zuckerberg himself, then that sets up a cascade of events where they've got to get him out of the leadership chair — perhaps he goes into an advisory capacity, perhaps he becomes chairman emeritus, I don't know,” Fitz-Gerald said. “But the board has got to say that this is a reset, we've acknowledged our transgressions, we're going to take these steps, and we're actually going to move forward.”
Thomas Hum is a writer at Yahoo Finance. Follow him on Twitter @thomashumTV
Follow Yahoo Finance on Twitter, Instagram, YouTube, Facebook, Flipboard, and LinkedIn