Through the media lens Mark Zuckerberg, the founder of Facebook, is seen less as a ruthless businessman and more as a genius entrepreneur of the liberal Silicon Valley breed. He has pledged almost all his fortune to charity and has taken steps to improve working conditions at his company, particularly for women.
Nerdy good guy he may be, but you don’t build a $500 billion business and become the world’s fifth richest person by being nice all the time. And his response to the Cambridge Analytica scandal has taken a while. After nearly four days of silence, Mr Zuckerberg responded yesterday. “The good news is that the most important actions to prevent this from happening again today we have already taken years ago,” he said. “But we also made mistakes, there’s more to do.”
Facebook has played fast and loose with its users’ data since its early days. However, the backlash proper began last year when it admitted, after months of prodding, that Russian forces were at play on its social network in the run-up to the US presidential election.
Some Facebook shareholders may be starting to realise that there are downsides to vesting so much power in the hands of a company’s young founder. As is the fashion in Silicon Valley, Mr Zuckerberg and his advisers carefully crafted Facebook’s share structure to ensure that he needn’t be beholden to the whims of his investors. He owns about 13 per cent of the company but controls nearly 60 per cent of its voting rights. If there were to be a backlash among top shareholders, they would need to vent their anger by selling shares. They’re not going to do that. The Cambridge Analytica saga may be scandalous and it may be symptomatic of a growing threat to western democracy. But none of that really matters when it comes to the cold, hard numbers.
We know that people generally do not care a jot about giving up their private information in return for free digital services. Despite the criticisms levelled over the years at Facebook and Google’s laissez-faire approach to user privacy, their customer numbers have continued to grow, and fast. This is what keeps the money flowing in. Remember, too, that Facebook is not just a social network. It is a company that also owns Instagram, the world’s most popular photo and video-sharing app, WhatsApp, the world’s most popular messaging app, and Facebook Messenger, another popular messaging platform. Each boasts more than a billion users and all are growing rapidly.
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The biggest challenges facing Facebook are political, not financial. And if the threat of greater regulation for all internet companies is looming, it’s a long way off. President Trump has shown scant interest in anything but cutting taxes and pursuing trade wars. America will need to take the lead on regulation because the European Commission, despite all of its bluster, cannot temper the power of Silicon Valley from across the Atlantic.
Facebook’s value fell by $50 billion between Monday’s opening and Tuesday’s close but the company is worth $80 billion more than it was a year ago. And this week’s share price drop, of about 9 per cent, means that Facebook trades at about 23 times its estimated 2018 earnings. Compare that with Twitter, which trades at 279 times estimated earnings, Netflix, which is at 110 times, and Ebay, at 25 times.
Nearly all big advertisers use Facebook and they do so because they get results. Mr Zuckerberg knows this, of course, but he probably won’t mention it when he eventually delivers his mea culpa.
ADVICE Buy
WHY Advertisers stuck with Facebook through the Russia scandal and will do so again, so this week’s share price dip is a buying opportunity
Vectura
“Excuse me. I’ve got a tickle in my throat,” a coughing James Ward-Lilley, chief executive of Vectura, said as he ran through full-year results yesterday. Vectura’s performance has also left investors spluttering this year. Shares in the asthma inhaler company have halved, triggering its demotion from the FTSE 250 index.
Mr Ward-Lilley, a former head of respiratory at Astrazeneca, called it a “challenging 2017”. Despite the shares weakening again yesterday, down 12¼p to 68½p, there remains room for optimism.
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The Chippenham-based company has expanded through acquisitions and partnerships, such as the merger with Skyepharma in 2016, to become one of the leading respiratory device and formulation companies.
The main issues have been delays to a key late-stage generic of Glaxosmithkline’s blockbuster Advair inhaler, which Vectura wants to launch in the US with Hikma Pharmaceuticals. Potential approval has been delayed until 2020. The hold-up could be particularly costly as Vectura and Hikma are in a race with rivals to launch the inhaler.
The other issue that has left investors feeling wheezy has been customers destocking their supply chains, which has weighed on revenues, and was flagged at the half-year results.
The annual results are complicated by Vectura changing its accounting period from March to December after its merger with Skyepharma. Underlying revenue was up 4 per cent to £131.4 million, driven by key products such as Flutiform and Ultibro, to leave underlying earnings of £25.8 million compared with £34.1 million for the nine-month period in 2016. On a statutory basis, losses deepened to £102.2 million, blamed on “discontinued royalty revenues and significant non-recurring milestones” as well as increased amortisation charges.
Vectura has responded by derisking its pipeline to focus on partnered generic products in the US. Potential catalysts for the stock include data expected in the second half for two asthma studies and, with cash of £103.7 million, potential deals.
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The slump in Vectura’s share price has also left it vulnerable to predatory takeover interest.
ADVICE Hold
WHY Signs the shares are near lowest and potential M&A play