Please ensure Javascript is enabled for purposes of website accessibility

Apple May Be the Biggest Winner From Facebook's Data Scandal

By Jamal Carnette, CFA - Updated Apr 3, 2018 at 12:15PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Tim Cook and Mark Zuckerberg's war of words tells you all you need to know about why Apple will benefit from Facebook's struggles. However, how much Apple will benefit is unclear.

In 2014, Apple (AAPL 0.00%) CEO Tim Cook penned a missive regarding Apple's approach to privacy. In the letter Cook famously noted, "A few years ago, users of Internet services began to realize that when an online service is free, you're not the customer, you're the product." Cook was mostly looking to contrast the business model of Apple, which involves mostly making money on device sales, versus that of Alphabet (GOOG -1.62%) (GOOGL -1.81%), which often sells devices at breakeven to make money from advertising and data collection.

However, Cook drew the ire of Facebook's (META -0.39%) CEO Mark Zuckerberg, who responded in an interview with Time magazine. Without mentioning Cook by name, Facebook's CEO responded, "A frustration I have is that a lot of people increasingly seem to equate an advertising business model with somehow being out of alignment with your customers."

A person holding a smartphone showing a lock on the screen with a laptop in the background.

Image source: Getty Images.

Apple may be the company most suited to benefit from Facebook's data-sharing scandal.

Facebook has a lot of data on Android users... and I mean a lot

Facebook's been in the news recently concerning its lax data sharing policies. To quickly recap, in 2015 the company allowed Cambridge Analytica to access data for approximately 50 million users via an app downloaded by approximately 270,000 people. The remainder did not give Cambridge Analytica permission, and many people are upset upon learning the data was used to form psychological profiles to influence elections, both in the U.S. and abroad.

The recent Facebook scandal may be even worse for the company. For Android-based users with the Facebook app, the company has a file that includes nearly every phone call and text message you've fired off on your phone. Due to Cook's stronger privacy stance, as noted above, Facebook does not have this information for iOS users.

Apple could be the biggest winner

It's likely the market will bifurcate on this issue and benefit Apple's stock both directly and indirectly, but the extent is unclear. For the former, it is my opinion Apple will minorly benefit as security will become more important to a small subset of smartphone shoppers, many of whom will defect from Alphabet's Android to Apple or will more firmly lock them into the iOS ecosystem. It's likely most people will not change their behavior or limit their data.

Indirectly, it could help Apple with relative valuations. In the oft-discussed "FAANG" cohort (which is Facebook, Amazon, Apple, Netflix, Google), Apple (alongside Netflix) are the two companies less affected by the debate on data usage and collection. Wholesale changes in consumer sentiment and increased regulation should affect these two companies to a lesser extent. At 13 times forward earnings, Apple already suffers from the lowest relative valuations within the cohort, and is even lower than the greater S&P 500's multiple of 17 times, so any multiple expansion would be welcomed.

For Apple investors, it's likely Facebook's data struggles are not a thesis-altering event. However, it's likely data concerns will become more important in the future and Apple is in a safer position than many other big tech companies.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Apple Inc. Stock Quote
Apple Inc.
$141.66 (0.00%) $0.00
Alphabet Inc. Stock Quote
Alphabet Inc.
$2,316.67 (-1.81%) $-42.83
Meta Platforms, Inc. Stock Quote
Meta Platforms, Inc.
$169.49 (-0.39%) $0.67
Alphabet Inc. Stock Quote
Alphabet Inc.
$2,332.45 (-1.62%) $-38.31

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 06/27/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.