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Facebook Roundup: App Suspension, DoJ Investigations, Soccer, Soros

Zacks Equity Research logoZacks Equity Research 8/23/2018 Sejuti Banerjea

Facebook FB is under considerable pressure from regulatory bodies over the way it deals with fake news and the way customer data is collected and shared through its platform. While fake news/censorship is a more difficult problem to tackle, privacy and security of user data is more within its control.

And that’s where it appears to be taking the right steps. Not too soon if you ask me because Europe’s GDPR requires most of it and the world will likely follow on the same path.

Facebook Suspends 400 Apps

Facebook has been doing an internal audit of its app ecosystem to determine those that have collected user data without authorization. This has led to the suspension of 400 apps. Suspension isn’t a ban of course, so the apps that are already installed on user devices will remain operational but won’t get updated until they collect the necessary authorization.

One app called myPersonality that accessed data of 4 million users for academic purposes and was operational before 2012 was banned “for failing to agree to our request to audit and because it is clear that they shared information with researchers as well as companies with only limited protections in place.”

Other apps with “suspicious activity” will also be banned if they do not agree to a “thorough audit.” Facebook says that level of access to customer data is no longer possible today, so it’s understandable that any apps it bans under this method will relate to older activity.

Facebook and Zuckerberg’s intentions become somewhat suspect however when you consider what they did with the VPN app Onavo. Tucked away inside the app description is a statement that “Onavo collects your mobile data traffic…

Because we’re part of Facebook, we also use this info to improve Facebook products and services, gain insights into the products and services people value, and build better experiences.” Apple AAPL has objected to the app on these grounds upon which Facebook offered to remove it from the App Store.

It, however, remains at large on Android devices because Alphabet’s GOOGL Google itself is given to making the most of customer data. So Facebook doesn’t appear to be changing its ways, it’s just trying to stay out of trouble and crossing each bridge when it comes to it.

On the fake news front, Zuckerberg said that the company removed 652 pages, accounts and groups related to Russian and Iranian propaganda and influence campaigns to spread misinformation and create discord amongst people.

Government Wants In on Encrypted Messenger Chats

The DoJ is trying to get Facebook to help it crack encrypted voice messages on Messenger, but the company is resisting the attempt because only the two parties engaged in the voice communication have access to it and because it violates the users’ privacy. The Fresno, California case, the details of which are under seal, relates to a criminal probe into the MS-13 gang, against which the government has initiated proceedings for violation of immigration law.

Legal opinion is divided on whether the government can force technology companies to disclose voice conversations over the Internet. But as things stand now, the wiretapping law that allows eavesdropping over traditional telecom networks when other methods of obtaining required information aren’t available, has not been extended to the digital world. So it appears that it will be hard for the government to force Facebook.

DoJ Investigating Ad Discrimination

Facebook offers a lot of scope for personalization on its platform, so advertisers can target specific audiences. But the company recently found out that selective targeting can get it on the wrong side of law enforcement, especially when it’s regarding essential things like housing.

So last week, the U.S. Department of Housing and Urban Development (HUD) filed an administrative complaint against the company for helping home advertisers discriminate on the basis of gender, race, religion, accessibility, national origins, etc and even exclude certain ZIP codes from viewing ads in violation of the Fair Housing Act.

The complaint also says that Facebook isn’t eligible for protection under the Communications Decency Act of 1996 that allows avoidance of responsibility for content placed on a company’s site by others (which makes sense in this case because Facebook is itself facilitating the discrimination).

To make matters worse, the US attorney for the Southern District of New York filed a "statement of interest" with the federal judge to allow the lawsuit by the National Fair Housing Alliance filed in March.

Facebook for its part has already eliminated thousands of terms from ad filtering since the first concerns surfaced in 2016. The company has responded by saying that “there is no place for discrimination on Facebook; it’s strictly prohibited in our policies…Over the past year we’ve strengthened our systems to further protect against misuse. We’re aware of the statement of interest filed and will respond in court; and we’ll continue working directly with HUD to address their concerns.”

Gets Soccer Content

Spain's leading soccer division La Liga has entered into an exclusive deal with Facebook to let the social media network bring all 380 matches for the new season to its 270 million+ viewers in India as well as those in Afghanistan, Bangladesh, Bhutan, Nepal, Maldives, Sri Lanka and Pakistan.

In total, Facebook has 348 million users in the Indian subcontinent, making it an attractive platform for a company like La Liga, which is looking to expand in the region. In 2017, the region brought an additional 2.2 million users to the league’s social media platforms.

The games will be live streamed free on the league’s Facebook page and highlights will also be available. There is no provision for replay of the full game as of now, but Facebook is still studying how users interact with the content. They can turn off comments if they choose. The first few games also won’t have ads that may be added later.

Sports is a good way to engage the younger population, so most technology companies with big platforms and a large number of users have targeted it.

Facebook’s payout isn’t known, but Sony, paid $32 million for the broadcast rights between 2014 and 2018.

Soros Adds Position

According to a 13F filing with the SEC, millionaire George Soros’ Soros Fund Management added Facebook, Apple and Twitter TWTR in the June quarter, while cutting its holdings in other notables like Alphabet, Netflix NFLX and Amazon AMZN. Spotify and Pandora Media were also in favor.

Recommendation

Facebook shares carry a Zacks Rank #4 (Sell). Companies worth investing in instead are included in the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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