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Facebook Is Losing a Key Exec and Board Member Over Data Practices

By Evan Niu, CFA – Updated May 1, 2018 at 4:31PM

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Meanwhile, the social network is still grappling with fallout from ongoing privacy scandals.

It's been over three years since Facebook (META -1.69%) closed its pricey acquisition of WhatsApp, which, at a whopping $19 billion price tag, remains the social networking giant's largest purchase to date. That lofty price tag directly translated into a potential time bomb, as Facebook recorded an enormous amount of goodwill and intangibles associated with the deal that may need to be written down at some point in the future. As part of the deal, WhatsApp co-founder Jan Koum joined Facebook as both a high-level exec and a member of the board of directors.

Koum has just announced that he is stepping down as WhatsApp CEO and leaving the company.

WhatsApp logo

Image source: WhatsApp.

Facebook wants WhatsApp's data

First reported by The Washington Post but subsequently confirmed by Koum in a Facebook posting, Koum reportedly clashed with Facebook over the parent company's desire to use WhatsApp user data and weaken encryption. When Facebook acquired WhatsApp in 2014, it vowed that WhatsApp would retain its autonomy and independence.

WhatsApp had controversially tweaked its terms of service back in 2016 to allow it to share user data with Facebook, including phone numbers. That move attracted the scorn of European regulators, and French privacy watchdog CNIL ordered WhatsApp to cease the practice just this past December. In March, the U.K.'s Information Commissioner's Office (ICO) scored a win when WhatsApp committed not to share data with Facebook until the parent company complies fully with the new General Data Protection Regulation (GDPR), which takes effect later this month.

Depending on the timing, Koum could forfeit $1 billion

Koum joins his fellow WhatsApp co-founder Brian Acton in departing. Acton had left Facebook in November and joined in the #DeleteFacebook movement in the wake of the Cambridge Analytica scandal. Koum, who became a multibillionaire following the acquisition, will be taking some time off to spend it with his...Porsches.

The outgoing exec will not stand for re-election to Facebook's board at its 2018 annual meeting later this month, Facebook confirmed in a regulatory filing this morning. Koum had received approximately 24.9 million Facebook shares from the acquisition, of which 5.8 million remain unvested, according to Bloomberg. If Koum resigns immediately before the remaining tranches vest, he could miss out on nearly $1 billion. The exec will still have pocketed over $10 billion.

This looks bad

Facebook will now need to find a new CEO for WhatsApp, at a time when it is still trying to figure out a monetization model for the service now that it has reached 1 billion users -- the milestone that Facebook had initially set as when it would attempt to monetize the popular messaging service.

The news may also further hurt Facebook's brand while it is still playing defense on ongoing privacy scandals regarding how user data is shared, stored, or leaked. Losing a prominent exec over user data concerns isn't going to help perception of the company right about now.

Evan Niu, CFA owns shares of Facebook. The Motley Fool owns shares of and recommends Facebook. The Motley Fool has a disclosure policy.

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