Apple and Amazon are relative safe havens.

• We expect over the next year investors will look favorably on Apple given the company’s privacy-first ethos in an age where privacy is becoming a more prevalent topic.
• Amazon will also likely benefit from the Facebook blowback given Amazon relies less on data to run its business than ad-focused companies.
• The biggest risk to Facebook is attrition and, to a lesser, extent regulation.

Attrition. People are upset that FB abused their trust, although it doesn’t seem that users are upset about social media in aggregate. The trend is #deletefacebook not #deletesocialmedia. The risk to Facebook is that user growth slows or even declines. At the end of Dec-17 quarter, the company had 1.4B DAUs, up 15% y/y. For 2018, the Street expects about 10% DAU growth. If Facebook misses those numbers, shares will likely be negatively impacted. While it’s still early to tell how serious this bout of outrage against Facebook will ultimately be, Twitter and Snap may have an opportunity to benefit if users do leave Facebook.

Regulation. The Cambridge Analytica news of the past week has extended the privacy topic beyond Facebook. Given the political nature of the scandal, it currently seems more likely than less likely that some sort of restrictions get placed on the use of online consumer data. Mark Zuckerberg’s comments yesterday on CNN suggested that Facebook will take additional steps to assure user privacy as well as being open to some level of government oversight. If the government does decide to regulate the use of online consumer data, it could negatively impact all companies that rely heavily on monetizing that data including Facebook, Google, Twitter, and Snap.

Apple’s privacy ethos.  Tim Cook has made privacy a religion at Apple. It impacts everything from secrecy around new products to Apple Pay‘s anonymous transaction framework. In fact, Apple has a section on its website that outlines all of the ways Apple protects user privacy across all of the ways one uses their devices. Some notable Apple privacy insights include:

• Privacy is a fundamental human right
• Apple doesn’t gather your personal information to sell to advertisers or other organizations
• Every Apple product is designed from the ground up to protect personal information
• If we use third-party vendors to store your information, we encrypt it and never give them the keys

Amazon is service-first. Amazon’s focus is on delighting the customer through the services they provide. While Amazon does sell targeted ad space on their website, the “Other” revenue segment, which mostly constitutes advertising revenue, was less than 3% of total revenue in the Dec-17 quarter ($1.7B out of $60.5B). Advertising has never been a focus of the company, and it’s inconceivable they would abandon their current core businesses to pivot to an ad-first model that leaves them exposed to the risks we’ve highlighted in this note. Amazon’s real use case for user data is on their own site, targeting users with product suggestions.

Disclaimer: We actively write about the themes in which we invest: artificial intelligence, robotics, virtual reality, and augmented reality. From time to time, we will write about companies that are in our portfolio. Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making investment decisions. We hold no obligation to update any of our projections. We express no warranties about any estimates or opinions we make.