Facebook’s stock price has fluctuated recently as several revelations related to data privacy have surfaced. The public outcry has forced the company to tighten its privacy policies. Does Facebook’s declining stock price also affect the surrounding companies?
Cambridge Analytica data leak revelations during March 2018 have made Facebook the epicenter of these news. Facebook has built an enormous ecosystem which consists of private citizens, organizations and interconnected companies. Ecosystem also includes marketers buying targeted ads based on Facebook’s data. Mark Zuckerberg’s company collects its revenues by selling targeted ads based on data its users has directly or indirectly provided.
Facebook is now under scrutiny by governments in the United States, U.K. and EU. The upcoming data privacy directive (GDPR) in EU will be in effect on May 25, 2018. This directive will cause additional privacy related questions for Facebook to answer.
Analysis of stock prices by using clustering methods
This analysis uses stock trading data from US companies listed in New York Stock Exchange (NYSE) and NASDAQ. The data include opening and closing stock prices with daily volumes.
23 different companies from tech, pharmaceutical and financial corporations were picked for the stock price analysis. Companies from pharma and financial industries were chosen to see if their prices change in the same manner as tech company prices.
Analysis uses unsupervised techniques to group companies based on historical trading patterns for stock prices. The stock analysis applied stock structure visualization example provided by Gael Varoquaux.
Data is collected using API provided by Quandl. Quandl’s API has interfaces to fetch historical trading data for public stocks.
Daily stock prices fluctuations among related stocks
Cluster technique used variations between daily opening and closing prices. The analysis placed these 23 companies into five clusters, based on historical stock prices since 2016.
- Cluster 1: Equifax
- Cluster 2: Facebook, FICO, Alphabet, Microsoft, Oracle, Twitter
- Cluster 3: Acxiom, Alliance Data Systems, AIG, American Express, Bank of America, Cisco, Goldman Sachs, IBM, JPMorgan Chase, Prudential Financial, Wells Fargo
- Cluster 4: Bristol-Myers, Johnson & Johnson, Eli Lilly, Merck
- Cluster 5: Nielsen
The analysis method was able to group tech companies into one cluster (cluster 2). Cluster 3 mainly consists of financial companies, but also some tech companies such as IBM. Analysis placed pharmaceutical companies into a separate cluster (cluster 4).
The following chart shows the daily variations in stock prices for these 23 companies. The closer the companies are located in the graph the more similar daily price variations are.
Facebook’s price changes follow similar pattern as Alphabet (Google) and Microsoft. Interestingly, Equifax and FICO as data sellers to Facebook also follow Facebook’s stock price changes. Pharma companies like Bristol-Myers were clustered together far apart from financial and tech companies.
Facebook no longer buys data from third-party companies
Soon after Cambridge Analytica news spread Facebook announced March 28 that it had stopped the Partner Category ad-targeting program. Facebook had been buying consumer data from third-party companies for ad-targeting purposes. That data was combined with the data from Facebook users and sold to marketers as targeted ads.
Partner Category program included for example the following companies collecting consumer data:
- Alliance Data Systems Corp (ADS)
- Experian PLC in the UK (EXPN)
- Datalogix (bought by Oracle Corp) (ORCL)
- Acxiom Corp (ACXM)
March announcement means that Facebook will no longer buy data from these third-party companies.
Facebook stock price declines in spring 2018
The following chart shows the daily closing prices for Facebook and three data seller company from January 1, 2016 to March 27, 2018. As the cluster analysis suggested privacy news have indeed affected the stock prices for these companies.
Daily volumes indicate that privacy news have also impacted daily trading volumes. Volumes have increased considerably as the stock prices plummeted.
Facebook also announced April 20, 2018 changes to Facebook API. Companies and applications using Facebook’s public API are no longer able to retrieve all the details for Facebook users as what they used to get. For example, Facebook user’s login details return now much smaller dataset. The applications are no longer able to fetch consumer’s details such as education or religion.
These companies may not be able to provide the same user experience for their users as a result of reduced consumer details from Facebook. This change is positive and long-awaited for consumers, although for companies using privacy data for commercial purposes not so much.
This analysis focused on Facebook and companies in Facebook ecosystem. Privacy restrictions announced by Facebook will start affecting more companies handling consumers’s private data.
We have not yet seen the real effect of GDPR EU privacy directive. This directive will affect not only European but also major US corporations dealing with consumer data within EU.
Facebook’s stock price is tightly coupled with tech and consumer data companies. Will Facebook’s declining stock price start a domino effect for these corporations?
Photo credit: NASA / Reid Wiseman