Facebook could enjoy the 'unintended consequences' of new regulations
- Data privacy regulation from the Federal Trade Commission could benefit Facebook, according to two Wall Street analysts.
- Regulation would impose costs associated with ensuring user privacy, which could impede the wave of new players competing with Facebook.
- This happened after the financial crisis, when regulation of the credit rating industry imposed costs that made it hard for new players to compete with the already dominant ones.
- Watch Facebook stock in real time here.
Potential data privacy regulations imposed by the Federal Trade Commission could benefit Facebook analyst Craig Huber of Huber Research Partners told Business Insider.
Facebook founder and CEO Mark Zuckerberg testified before Congress Tuesday and Wednesday. When Senator Lindsey Graham asked Zuckerberg whether he believed Facebook is a monopoly, Zuckerberg replied, "it certainly doesn't feel like that to me."
But new data privacy regulations from the FTC could contribute to Facebook becoming more of a monopoly. according to Huber. If the FTC forces internet companies to take measures to ensure user privacy, "you'd make it harder for some companies to enter the market, you'd make it more expensive," he said.
Regulation could increase costs associated with ensuring privacy, making it hard for new players to compete with the likes of Facebook. "It costs a lot more money to comply with new regulations," Huber said.
"We've seen it with other industries, where regulators come in and it actually does raise barriers to entry because the higher legal, compliance, and IT costs, etcetera are unintended consequences."
He cited a scenario after the financial crisis, where new regulations on credit ratings agencies made it harder, not easier, for new entrants. "Their legal, compliance, and IT costs went up significantly," he said.
"For any startups out there, they had to come up with a lot more money in order to comply with regulation." There were "unintended consequences that pushed up barriers to entry and helped solidify the big players in the industry further," he said.
Anthony DiClemente of Evercore ISI echoed Huber's assessment. "Regulation would likely act to increase Facebook's relative strength over competitors," he wrote in a note to clients.
"It would increase the barriers to entry from upstart rivals by mandating costly investments and reducing the chance that others can amass data at scale."
Huber and DiClemente are both optimistic on the stock. Huber said he is "quite bullish," and that "when all is said and done, this should be a buying opportunity for the stock."
His price target is $220, well above its current price of roughly $164 a share.
DiClemente's price target is $200.
Facebook is up 7% in the past week.
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