Major technology and internet stocks continue to be among the strongest-performers in the U.S. stock market, but that growth — along with their ubiquity in the lives of nearly every American — could also present a risk that investors are only just beginning to appreciate.
Issues surrounding user data, and how companies use and protect that data, could be a long-term factor in how these stocks perform, according to a study from Sustainalytics, a research firm that focuses on issues related to on socially responsible investing.
“Collecting and processing personal data has become one of the most significant drivers of financial value in today’s economy. But as the upside of personal data grows, so too does the downside risk associated with data security, management and privacy,” the firm wrote in a research report.
Notably, Facebook Inc.
FB, +0.44%
fell sharply earlier this year after it was revealed that the personal data of 50 million Facebook users was used by election-data company Cambridge Analytica without the users’ permission.
More recently, Facebook confirmed that it had struck data partnerships with at least four Chinese electronics firms, including one that U.S. officials view as a potential tool for state-sponsored spying. It also blamed a software bug for making user posts public in late May—regardless of whether users intended to share the information publicly.
While the stock has recovered the losses in incurred in March, recently returning to record territory, shares have remained volatile on these types of developments, underlining how sensitive investors and analysts are to these issues, particularly if they could result in new regulations.
“As the privacy debate evolves, rather than focusing only on financial metrics, tech companies are increasingly expected to comment on data and their related risk exposures,” the Sustainalytics report said. “Investors are watching the industry closely to see whether business models reliant on data collection, processing, and selling targeted advertising will be increasingly regulated, exposed to litigation from users, and possibly suffer reputational damage as ethical questions around collection and use of data become sharper.”
Sustainalytics analyzed seven stocks — the “FAANG” quintet of Facebook, Amazon, Apple, Netflix, and Google-parent Alphabet
GOOGL, +0.03%
along with Twitter
TWTR, +3.66%
and Microsoft Corp.
MSFT, +0.55%
— and evaluated them based on how strong their privacy management was, and how exposed they were to data-privacy concerns.
Apple
AAPL, -1.17%
and Netflix
NFLX, -0.19%
which derive basically no revenue from advertising, in contrast to Facebook and Google, were seen as having the least exposure, although Netflix was also seen has having weaker privacy management, based on what it has disclosed.
Scoring the worst overall were Facebook and Amazon
AMZN, -0.12%
The pair “stand out as being particularly vulnerable, due to a combination of high risk exposure and weak data management programs,” the report read.
“Investors would do well to prepare for the risks and opportunities of investing in companies that collect personal data. Companies that balance privacy expectations, data monetization and diverse revenue streams are likely better positioned to maintain stakeholder trust,” the report said.
Source : MTV
