A top analyst explains why everyone's overreacting to Facebook's data scandal

  • Facebook reports first-quarter earnings on Wednesday after the bell.
  • The social media giant has ways around potential regulatory hurdles, and its positioning in the global advertising market is only strengthening, RBC Capital Markets' Mark Mahaney said.
  • Watch Facebook trade in real time here.

Regulation won't hinder Facebook's growth potential, according to RBC Capital Markets analyst Mark Mahaney.

Facebook shed as much as $100 billion of market cap after news of the Cambridge Analytica scandal broke as investors feared increased regulation and its potential impact on ad spending on the platform. 

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Facebook CEO Mark Zuckerberg testifies before Congress
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Facebook CEO Mark Zuckerberg testifies before Congress
WASHINGTON, DC - APRIL 10: Facebook co-founder, Chairman and CEO Mark Zuckerberg arrives to testify before a combined Senate Judiciary and Commerce committee hearing in the Hart Senate Office Building on Capitol Hill April 10, 2018 in Washington, DC. Zuckerberg, 33, was called to testify after it was reported that 87 million Facebook users had their personal information harvested by Cambridge Analytica, a British political consulting firm linked to the Trump campaign. (Photo by Chip Somodevilla/Getty Images)
Facebook CEO Mark Zuckerberg arrives to testify before a House Energy and Commerce Committee hearing regarding the company?s use and protection of user data on Capitol Hill in Washington, U.S., April 11, 2018. REUTERS/Leah Millis
Facebook CEO Mark Zuckerberg arrives to testify before a House Energy and Commerce Committee hearing regarding the company?s use and protection of user data on Capitol Hill in Washington, U.S., April 11, 2018. REUTERS/Leah Millis
Facebook CEO Mark Zuckerberg testifies before a House Energy and Commerce Committee hearing regarding the company?s use and protection of user data on Capitol Hill in Washington, U.S., April 11, 2018. REUTERS/Leah Millis
Facebook CEO Mark Zuckerberg arrives to testify before a joint hearing of the US Senate Commerce, Science and Transportation Committee and Senate Judiciary Committee on Capitol Hill, April 10, 2018 in Washington, DC. / AFP PHOTO / JIM WATSON (Photo credit should read JIM WATSON/AFP/Getty Images)
Mark Zuckerberg, chief executive officer and founder of Facebook Inc., waits to begin a joint hearing of the Senate Judiciary and Commerce Committees in Washington, D.C., U.S., on Tuesday, April 10, 2018. Lawmakers will grill Zuckerberg on issues ranging from the troves of data vacuumed up by app developers and political consultant Cambridge Analytica to Russian operatives' use of the social network to spread misinformation and discord during the 2016 U.S. presidential election. Photographer: Andrew Harrer/Bloomberg via Getty Images
Facebook founder and CEO Mark Zuckerberg arrives to testify during a Senate Commerce, Science and Transportation Committee and Senate Judiciary Committee joint hearing about Facebook on Capitol Hill in Washington, DC, April 10, 2018. / AFP PHOTO / SAUL LOEB (Photo credit should read SAUL LOEB/AFP/Getty Images)
Facebook founder and CEO Mark Zuckerberg arrives to testify during a Senate Commerce, Science and Transportation Committee and Senate Judiciary Committee joint hearing about Facebook on Capitol Hill in Washington, DC, April 10, 2018. / AFP PHOTO / SAUL LOEB (Photo credit should read SAUL LOEB/AFP/Getty Images)
Facebook CEO Mark Zuckerberg arrives to testify before a Senate Judiciary and Commerce Committees joint hearing regarding the company?s use and protection of user data, on Capitol Hill in Washington, U.S., April 10, 2018. REUTERS/Leah Millis
Facebook CEO Mark Zuckerberg arrives to testify before a Senate Judiciary and Commerce Committees joint hearing regarding the company?s use and protection of user data on Capitol Hill in Washington, U.S., April 10, 2018. REUTERS/Aaron P. Bernstein
Facebook CEO Mark Zuckerberg arrives to testify before a Senate Judiciary and Commerce Committees joint hearing regarding the company?s use and protection of user data, on Capitol Hill in Washington, U.S., April 10, 2018. REUTERS/Aaron P. Bernstein
The witness table is seen before Facebook CEO Mark Zuckerberg appearance at a joint hearing of the Senate Commerce, Science and Transportation Committee and Senate Judiciary Committee on Capitol Hill, April 10, 2018 in Washington, DC. / AFP PHOTO / Brendan Smialowski (Photo credit should read BRENDAN SMIALOWSKI/AFP/Getty Images)
Facebook CEO Mark Zuckerberg arrives to testify before a joint hearing of the US Senate Commerce, Science and Transportation Committee and Senate Judiciary Committee on Capitol Hill, April 10, 2018 in Washington, DC. / AFP PHOTO / JIM WATSON (Photo credit should read JIM WATSON/AFP/Getty Images)
Facebook CEO Mark Zuckerberg arrives to testify before a joint hearing of the US Senate Commerce, Science and Transportation Committee and Senate Judiciary Committee on Capitol Hill, April 10, 2018 in Washington, DC. / AFP PHOTO / JIM WATSON (Photo credit should read JIM WATSON/AFP/Getty Images)
Facebook CEO Mark Zuckerberg arrives to testify before a joint hearing of the US Senate Commerce, Science and Transportation Committee and Senate Judiciary Committee on Capitol Hill, April 10, 2018 in Washington, DC. / AFP PHOTO / JIM WATSON (Photo credit should read JIM WATSON/AFP/Getty Images)
Facebook founder and CEO Mark Zuckerberg arrives to testify during a Senate Commerce, Science and Transportation Committee and Senate Judiciary Committee joint hearing about Facebook on Capitol Hill in Washington, DC, April 10, 2018. / AFP PHOTO / SAUL LOEB (Photo credit should read SAUL LOEB/AFP/Getty Images)
WASHINGTON, DC - APRIL 10: Facebook co-founder, Chairman and CEO Mark Zuckerberg arrives to testify before a combined Senate Judiciary and Commerce committee hearing in the Hart Senate Office Building on Capitol Hill April 10, 2018 in Washington, DC. Zuckerberg, 33, was called to testify after it was reported that 87 million Facebook users had their personal information harvested by Cambridge Analytica, a British political consulting firm linked to the Trump campaign. (Photo by Chip Somodevilla/Getty Images)
Facebook CEO Mark Zuckerberg listens while testifying before a joint Senate Judiciary and Commerce Committees hearing regarding the company?s use and protection of user data, on Capitol Hill in Washington, U.S., April 10, 2018. REUTERS/Leah Millis
Facebook CEO Mark Zuckerberg takes a drink while testifying before a Senate Judiciary and Commerce Committees joint hearing regarding the company?s use and protection of user data on Capitol Hill in Washington, U.S., April 10, 2018. REUTERS/Alex Brandon/Pool
Facebook CEO Mark Zuckerberg takes a drink while testifying before a Senate Judiciary and Commerce Committees joint hearing regarding the company?s use and protection of user data on Capitol Hill in Washington, U.S., April 10, 2018. REUTERS/Alex Brandon/Pool
Facebook CEO Mark Zuckerberg testifies before a joint Senate Judiciary and Commerce Committees hearing regarding the company?s use and protection of user data, on Capitol Hill in Washington, U.S., April 10, 2018.
Facebook CEO Mark Zuckerberg testifies before a Senate Judiciary and Commerce Committees joint hearing regarding the company?s use and protection of user data on Capitol Hill in Washington, U.S., April 10, 2018. REUTERS/Aaron P. Bernstein
Facebook CEO Mark Zuckerberg sits down following a break to resume testifying before a joint Senate Judiciary and Commerce Committees hearing regarding the company?s use and protection of user data, on Capitol Hill in Washington, U.S., April 10, 2018. REUTERS/Leah Millis
Facebook CEO Mark Zuckerberg sits down following a break to resume testifying before a joint Senate Judiciary and Commerce Committees hearing regarding the company?s use and protection of user data, on Capitol Hill in Washington, U.S., April 10, 2018. REUTERS/Leah Millis
Senator John Kennedy (R-LA) listens as Facebook CEO Mark Zuckerberg testifies before a joint Senate Judiciary and Commerce Committees hearing regarding the company?s use and protection of user data, on Capitol Hill in Washington, U.S., April 10, 2018. REUTERS/Leah Millis
Sen. Shelley Moore Capito (R-WV) listens as Facebook CEO Mark Zuckerberg testifies before a joint Senate Judiciary and Commerce Committees hearing regarding the company?s use and protection of user data, on Capitol Hill in Washington, U.S., April 10, 2018. REUTERS/Leah Millis
Senator John Kennedy (R-LA) (L) looks on as Senator Lindsey Graham (R-SC) holds up the privacy agreement of Facebook as its CEO Mark Zuckerberg testifies before a joint Senate Judiciary and Commerce Committees hearing regarding the company?s use and protection of user data, on Capitol Hill in Washington, U.S., April 10, 2018. REUTERS/Leah Millis
Facebook CEO Mark Zuckerberg responds to a question about his own personal information becoming public as he testifies before a joint Senate Judiciary and Commerce Committees hearing regarding the company?s use and protection of user data, on Capitol Hill in Washington, U.S., April 10, 2018. REUTERS/Leah Millis
Facebook CEO Mark Zuckerberg testifies before a joint Senate Judiciary and Commerce Committees hearing regarding the company?s use and protection of user data, on Capitol Hill in Washington, U.S., April 10, 2018. REUTERS/Aaron P. Bernstein
Facebook CEO Mark Zuckerberg is surrounded by members of the media as he arrives to testify before a Senate Judiciary and Commerce Committees joint hearing regarding the company?s use and protection of user data, on Capitol Hill in Washington, U.S., April 10, 2018. REUTERS/Leah Millis TPX IMAGES OF THE DAY
WASHINGTON, DC - APRIL 09: Facebook CEO Mark Zuckerberg (2 L) arrives at a meeting with U.S. Sen. Bill Nelson (D-FL), ranking member of the Senate Committee on Commerce, Science, and Transportation, April 9, 2018 on Capitol Hill in Washington, DC. Zuckerberg is scheduled to testify before a few Congressional committees this week on the mass users data Facebook has shared with political operatives. (Photo by Alex Wong/Getty Images)
UNITED STATES - APRIL 9: Facebook CEO Mark Zuckerberg arrives for his meeting with Sen. Bill Nelson, D-Fla., in the Hart Senate Office Building on Monday, April 9, 2018. Zuckerberg is on Capitol Hill to testify before the House and Senate this week. (Photo By Bill Clark/CQ Roll Call)
Mark Zuckerberg and Andrea Besmehn, Mark Zuckerbergs executive assistant at Facebook depart US Senator Bill Nelson's, D-Florida, office on Capitol Hill in Washington, DC, on April 9, 2018. Embattled Facebook chief Mark Zuckerberg has placed the blame for security lapses at the world's largest social network squarely on himself as he girded Monday for appearances this week before angry lawmakers.In prepared remarks released by a congressional panel, Zuckerberg admitted he was too idealistic and failed to grasp how the platform -- used by two billion people -- could be abused and manipulated. / AFP PHOTO / JIM WATSON / The erroneous mention[s] appearing in the metadata of this photo by JIM WATSON has been modified in AFP systems in the following manner: [Andrea Besmehn (R), Mark Zuckerbergs executive assistant at Facebook] instead of [Priscilla Chan]. Please immediately remove the erroneous mention[s] from all your online services and delete it (them) from your servers. If you have been authorized by AFP to distribute it (them) to third parties, please ensure that the same actions are carried out by them. Failure to promptly comply with these instructions will entail liability on your part for any continued or post notification usage. Therefore we thank you very much for all your attention and prompt action. We are sorry for the inconvenience this notification may cause and remain at your disposal for any further information you may require. (Photo credit should read JIM WATSON/AFP/Getty Images)
WASHINGTON, DC - APRIL 09: Facebook CEO Mark Zuckerberg (C) leaves after a meeting with U.S. Sen. Bill Nelson (D-FL), ranking member of the Senate Committee on Commerce, Science, and Transportation, April 9, 2018 on Capitol Hill in Washington, DC. Zuckerberg is scheduled to testify before a few Congressional committees this week on the mass users data Facebook has shared with political operatives. (Photo by Alex Wong/Getty Images)
WASHINGTON, DC - APRIL 09: Facebook CEO Mark Zuckerberg (3rd L) leaves after a meeting with U.S. Sen. Bill Nelson (D-FL), ranking member of the Senate Committee on Commerce, Science, and Transportation, April 9, 2018 on Capitol Hill in Washington, DC. Zuckerberg is scheduled to testify before a few Congressional committees this week on the mass users data Facebook has shared with political operatives. (Photo by Alex Wong/Getty Images)
Mark Zuckerberg, chief executive officer and founder of Facebook Inc., exits after a meeting with Senator Dianne Feinstein, a Democrat from California, not pictured, on Capitol Hill in Washington, D.C., U.S., on Monday, April 9, 2018. Zuckerberg, in prepared testimony for the U.S. House of Representatives, said all of Facebook's problems are his mistake. Photographer: Yuri Gripas/Bloomberg via Getty Images
WASHINGTON, DC - APRIL 09: Facebook CEO Mark Zuckerberg (C) leaves the office of Sen. Dianne Feinstein (D-CA) after meeting with Feinstein on Capitol Hill on April 9, 2018 in Washington, DC. Zuckerberg is meeting with individual senators in advance of tomorrow's scheduled hearing before the Senate Judiciary and Commerce committeees. Zuckerberg is under pressure to explain why tens of millions of Facebook user's private information was shared with Cambridge Analytica. (Photo by Win McNamee/Getty Images)
WASHINGTON, DC - APRIL 09: Facebook CEO Mark Zuckerberg (C) leaves the office of Sen. Dianne Feinstein (D-CA) after meeting with Feinstein on Capitol Hill on April 9, 2018 in Washington, DC. Zuckerberg is meeting with individual senators in advance of tomorrow's scheduled hearing before the Senate Judiciary and Commerce committeees. (Photo by Win McNamee/Getty Images)
WASHINGTON, DC - APRIL 09: Facebook CEO Mark Zuckerberg (3rd L) leaves after a meeting with U.S. Sen. Bill Nelson (D-FL), ranking member of the Senate Committee on Commerce, Science, and Transportation, April 9, 2018 on Capitol Hill in Washington, DC. Zuckerberg is scheduled to testify before a few Congressional committees this week on the mass users data Facebook has shared with political operatives. (Photo by Alex Wong/Getty Images)
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"Facebook has been, is, and will remain for the foreseeable future a must-buy for most consumer-oriented marketers," Mahaney wrote in a note to clients. 

Potential regulation won't hurt Facebook's revenue, and its growth in digital advertising will continue at a strong clip, Mahaney said in a subsequent phone conversation with Business Insider. 

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Regulation

Facebook has ways to work around any issues with the European Union's GDPR, according to Mahaney. The GDPR rules will require advertisers to ask users if they want to opt-in to allowing the advertisers to use their personal data.

"It's unlikely that GDPR will impact Facebook's advertising revenue," Mahaney told Business Insider.

"There's the ability for Facebook to do a lot with whatever users are willing to let Facebook use," he added.

But he doesn't even think there will be such hefty data restrictions. "I don't think there's going to be any limits to the demographic targeting that is on Facebook," he said. 

Still, the Federal Trade Commission may take regulatory measures on internet companies, in light of the Cambridge Analytica scandal. But Mahaney maintained his position. "I do not see a material long-term impact" as a result of FTC regulation, he wrote in the note out to clients. Even if the FTC moves on the data issue, actual regulation wouldn't go into effect for a long time. "GDPR took years to come into place," he told Business Insider. "If there's similar legislation to come into place, it will take years." 

Digital Ads

Regulation aside, Mahaney expects Facebook's positioning in the global advertising market to get even stronger.

"Facebook will still offer advertisers scale and reach that very few other platforms can offer," he said.

"I would expect Facebook to grow at premium rates," he said, adding that "I think its share will continue to rise over time."

He likened Facebook's growth potential to that of Google's, noting that Google's revenue grew by 23% year-over-year in its first-quarter earnings report, beating Wall Street's expectations. 

Mahaney's price target is $250, about 56% above where shares are currently trading. 

Facebook reports first-quarter earnings after Wednesday's closing bell. Wall Street expects the social media giant to report earnings of $1.38 a share on revenue of $11.41 billion, according to Bloomberg data

Facebook is down 12.41% this year. 

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