A key player in the data revolution is under siege. Some would say deservedly so.
Politicians, regulators and pundits are circling for the kill. But as an investor, you need to know when to use a pullback as a buying opportunity.
For Facebook (FB), this is one of those times. Here’s why …
Last week, Facebook reluctantly revealed that Cambridge Analytica, a data science consultant hired by the 2016 Trump presidential campaign, exploited its user data to shape its marketing strategy.
Since the story broke, some $80 billion of shareholder value has gone up in smoke.
Unfortunately, sellers are missing the point … almost entirely.
Harvesting data, and selling it to advertisers, is Facebook’s business model. And Mark Zuckerberg’s company is very good at it.
Its best-in-class online platform — coupled with its popular mobile apps Instagram, WhatsApp and Messenger — vacuum up your clicks, likes and location data. It also mines information about your friends and family every time you log in.
This is the trade-off members make for free services. And during the past week, the company has reminded users that they agreed to these terms.
However, it took out an apologetic full-page ad in several major U.S. and U.K. newspapers this past weekend, addressing the data-gathering tactics at the root of the problem. This is a good reminder that …
Facebook didn’t start the data revolution. But it did perfect the collection process.
In this digital era, data is everywhere. It is valuable.
|On Sunday, The New York Times, The Washington Post and The Wall Street Journal print editions carried this full-page ad from Facebook, as did a half-dozen U.K. papers.|
Enterprising businesses are rushing to collect it, and then use machine learning and predictive analytics to make informed choices.
For corporations, it means the end of hit-and-miss business strategies.
For consumers, it means more useful products and better experiences.
Google Maps, for example, is a wealth of useful information. It can tell users about big city transit systems all over the world. It can tell commuters if there is unusual traffic on the way to work, and then suggest an alternate route. It can even tell you if your favorite restaurant is busy.
To do this, Google needs to tie into local transit APIs (application programming interfaces) … carefully map business locations … and, most important, collect the location data of tens of millions of Android and iOS smartphones.
With the data in hand, the next step is deploying robust machine-learning algorithms … plus some predictive analytics to make it all useful.
It may be a bit creepy that Google always knows where you are. But this is not by default.
You have to turn on location services. You have to opt in.
And that is the more significant point. Facebook didn’t pull the wool over its members’ eyes. When they signed up to use the platform, they agreed to the privacy policies. They decided to have their online behavior tracked, collated and sold to advertisers.
They gave away their data to gain access to the photo-sharing and online community.
Pundits call the Cambridge Analytica scandal a data breach. But to do so is a tremendous disservice to actual wrongdoing.
In its print ad, Facebook calls the Cambridge Analytica leak a “breach of trust.” But that’s not quite the same thing as the recent, and ongoing, Equifax (EFX) data breach.
Remember, Equifax exists solely to collect and protect consumer credit information. Hackers managed to steal the personal data, including social insurance numbers, of 147.9 million U.S. adults.
Related story: Hackers are Winning. Invest in Companies That Stop Them
News pundits tossing around the platitude that Facebook members are “the product,” as opposed to customers, conveniently forget their own tawdry role in the 2016 presidential election …
They forget about the thousands of hours of programming devoted to salacious soundbites, non-news events and empty podiums …
They forget that they still assemble combative panels solely to keep viewers tuned in, rather than well-informed.
Their viewers are the product, too. That’s how advertising works, duh.
In 2016, Les Moonves, the chief executive officer of CBS, famously said of the 2016 presidential race: “It may not be good for America, but it’s damn good for CBS.”
Politics, and widespread outrage aside, Facebook’s business model is not going away. It is a media company that can accurately measure … and deliver … many data-tested, target audiences.
The data revolution is about clarity. With Facebook, advertisers know what they are getting. They can measure it. They are willing to pay for it.
I have been telling my subscribers to buy Facebook shares into weakness. It is an excellent business with a dominant franchise that cannot be easily duplicated. Others, like Alphabet (GOOGL) and Apple (AAPL), have tried and failed.
Threats of regulation will only erect more significant barriers to entry, keeping profit margins high.
Salesforce.com (CRM), the giant customer relationship manager, is another data warrior that investors should be buying into weakness. The San Francisco software company commands 25% of the entire customer relationship management (CRM) market and has all of the best clients. Lately, managers have been pushing aggressively into artificial intelligence, with a platform called Einstein.
Developers are being encouraged to build applications with Einstein extensions that leverage its powerful predictive analytics software. The goal is to begin to know what customers want before they even ask. This is a game-changing strategy that should lead to more customer entrenchment, better pricing power and higher margins.
The stock is weaker in the face of a $6.5 billion bid for Mulesoft (MULE), a software company that provides the connective tissue between applications and data.
The bottom line is investors should not fear companies that unapologetically collect data — even your data. They have already won the first skirmishes of the digital revolution.
Jon D. Markman
P.S. The current tech stock rout, sparked by fears of potential regulation, is a buying opportunity. My Tech Trend Trader members are sitting on some pretty hefty gains right now, even with the latest trading action.
If you want a rock-solid list of the best names to buy today — and new technology warriors that are getting ready to emerge — click this link to start your membership today.