The shares dropped by about 7.3 percent, which put Facebook on track with its historic one-day 19 percent drop earlier this year. The steep decline has continued a sell-off of shares that have eradicated almost 40 percent of value.
In addition to the lawsuit, Facebook could potentially face more regulatory pressure in the future, which could affect shares negatively as well.
This puts the stock in a strange position, KC Rajkumar, an analyst at Lynx Equity Strategies, told Bloomberg. He said the news was “an incremental negative, as it is the first of its kind in the U.S. against FB,” and that the stock “continues to muddle along, caught between plateauing user growth and increasing regulatory pressure.”
Despite the news, some are not retreating from the stock, like JMP Securities Analyst Ron Josey.
“Another shoe dropped today, but when we think about Facebook’s fundamentals, its buyback program, we think it looks very attractive from a valuation perspective,” Josey said. “A lot of these issues are in the past or have been fixed, and we think we’re getting to a point where they’ve been priced in.”
Josey, who has a $176 price target on Facebook, remains optimistic. Bloomberg said 41 firms have a buy rating on Facebook shares, with nine holding and three rating it a sell. The average target price of the stock is $189.
As for the lawsuit, Facebook could potentially be facing a maximum penalty of $5,000 per alleged violation, and prosecutors said 852 people in Washington, D.C. downloaded the app that allegedly stole data.
Approximately 340,000 people had data collected from them because they were friends with the initial downloaders. This means Facebook could potentially face a fine of $1.7 billion.