shares rebounded after the week’s turbulence and, at a recent $190 and change, are up 45% this year. That’s despite a raft of questions around data-privacy issues, election interference, fake news, and a recent settlement with the Federal Trade Commission, plus ongoing antitrust probes.
One big reason: its plan for the cryptocurrency Libra, and a new subsidiary called Calibra that will provide a digital wallet for Libra starting next year, allowing you to send the cryptocurrency to almost anyone with a smartphone. Cathie Wood of ARK Investment Management—which manages
American Beacon Ark Transformational Innovation
(ticker: ADNIX) and a number of exchange-traded funds, including the ARK Fintech Innovation ETF (ARKF)—is a fan. Wood exited Facebook (FB) in 2018, but began building a new position in June after the company released its white paper on Libra. Wood is a fan of other cryptos, but is dazzled by Facebook’s 2.4 billion users. “That’s a footprint that nobody else in the world has,” she says. “They would be a disruptive payment-solutions provider in the emerging markets,” where about two-thirds of Facebook’s users live. Meanwhile, personal remittances hit $529 billion last year.
There’s still plenty to worry about, given that regulators in emerging markets are leery of cryptos replacing and destabilizing their currencies. India is considering banning cryptos; China, Indonesia, and Bangladesh already have. But Libra and other coins are legitimizing the crypto space, Wood argues. She is limiting Facebook exposure in the Fintech fund to 1%; but simply on the growth of online advertising, she believes that Facebook stock could return “roughly 20% a year” for the next five years. “The call option is Libra, particularly Calibra. This could be a grand slam.”
It won’t be easy. Whatever happens, expect regulators to keep coming after Facebook, echoing concerns raised by activist shareholders. This past spring, a proposal backed by seven state treasurers sought to split the chairman and chief executive roles held by Mark Zuckerberg. The proposal, filed by Trillium Asset Management, was voted down—but the issue is hardly settled.
Jonas Kron, senior vice president at Trillium, which owns $9 million Facebook shares, says he intends to bring up the proposal again this coming year, despite Zuckerberg’s voting control. “We got 68% of the vote from shareholders not named Mark Zuckerberg,” says Kron. “That was astonishing.” At the same time, he notes, the lead independent director at Facebook, Susan Desmond-Hellmann, got 67% of the vote.
“There’s a deep level of concern about corporate governance at Facebook,” says Kron. Indeed, the FTC settlement order echoed some shareholder concerns about governance. The order requires Facebook’s board to have an independent privacy committee whose members are chosen by an independent nominating committee. Kron says: “Before this, I had been starting to write a nominating committee proposal.” Next proxy season, “we’re planning to move forward with an independent board-chair proposal again.”
ARK’s Wood normally defends voting control of visionary CEOs, “because traditional asset managers are so short-term in their focus they’re unwilling to [let a company] invest aggressively to capitalize on enormous opportunities.”
Fintech is such an opening for Facebook. Still, Wood concedes, “there weren’t enough controls when it came to privacy. [Voting control] is less of an issue with Facebook now that it has scaled. Maybe it’s time to split those roles.”
Write to Leslie P. Norton at [email protected]