Silicon Valley meets Wall Street
Silicon Valley meets Wall Street - How cybersecurity is changing the way we value financial assets
With seemingly daily reports of massive data breaches, cybersecurity remains one of the highest risks facing firms and their clients. But none of this is news. Instead, in this article I'll be taking a close-up look at some of the quantifiable effects that security breaches have had on asset market values. Here's a roundup of some of the more infamous cases in recent news:
Ever since the Cambridge Analytica scandal, Facebook's privacy policies and practices have been under intense scrutiny. But even more than the massive hit this has taken on their reputation, Facebook is also suffering a loss in the place that matters most to investors: their wallet. Just last month, Facebook released an earnings report which estimated an eventual $3 to $5 billion payout to the FEC, who is currently investigating their data privacy practices. And this was all before the more recent WhatsApp security breach which obliterated nearly 5% of their market cap, sinking Facebook to a monthly low. Needless to say, Facebook will be making some hefty investments around cybersecurity and privacy in an attempt to rebuild shareholder confidence in their ability (and desire) to protect user data.
Incredibly, Facebook's struggles pale in comparison to Yahoo's >7% devaluation which resulted directly from two massive data breaches in 2015. All of this, while Yahoo was in the process of being sold to Verizon; a plan which was very nearly derailed following the disclosure of the breaches. While Verizon did ultimately follow through on the deal, it trimmed off a cool $350 million from the price tag.
Muddy Waters Capital
San Francisco-based hedge fund, Muddy Waters Capital, made headlines when it announced a critical security flaw in pacemakers and other medical devices manufactured by St Jude Medical. In response, St Judeís stock (which Muddy Waters had unsurprisingly shorted) tanked 10% in intraday trading, helping the fund finish the year with a 16 percent gain. It wasnít long before other funds partnered with cybersecurity experts to hunt for similar flaws in everything from chip manufacturers to airline operators.
But perhaps the ranking champion of cyber-related devaluations remains TalkTalk, a UK-based telecommunication firm. In the fall of 2015, the company suffered its third data breach of the year, compelling some 100,000 customers to shutter their accounts and sending the stock spiraling down nearly 20%. Moreover, itís estimated that the breach cost the firm an additional £60 million. Sounds bad? Here comes the kicker. TalkTalkís operating profit from the previous year was only £54 million. Iíll let you do the math.
The Takeaway: While Silicon Valley and Wall Street are geographically located on opposing sides of the continent, their work will only become increasingly entangled in the coming years. The prize, then, will go to investors which choose to embrace this changing reality, creating a competitive advantage for both themselves and their clients.
About Silent Breach: Silent Breach is an award-winning provider of cyber security services for Fortune 500 companies. Our global team provides cutting-edge insights and expertise across the Data Center, Enterprise, SME, Retail, Government, Finance, Education, Automotive, Hospitality, Healthcare and Internet of Things (IoT) industries.