In the past fifteen months, the shares of Facebook (NASDAQ 🙂 have almost remained in place. Formerly a market enthusiast, the share of the social media giant has increased by only 3.6% during that period, which is considerably better than the performance of 8.6% in the same period.
Facebook & # 39; s current price of $ 194 is the same as in January 2018, with the stock largely traded sideways since then.
Even after the strong revenue growth of last week, Facebook shares still seem to go nowhere. Since the share was publicly traded in 2012, it has never been anchored in the same price for two years now, something that is now dangerously close. If the business is that good, what went wrong?
The figures of the company are indeed higher: the turnover in the third quarter was $ 17.6 billion, 29% higher than a year earlier. Earnings were $ 2.12 per share, 20% more than the same quarter last year. Although the share price after profit rose and reached $ 198, they immediately fell back to $ 193.
The problem for Facebook is not about profitability. Rather, it's about perception: investor sentiment is simply based on what the company does and what it stands for.
This is because the colossal social media have been in the spotlight on two fronts at the same time and have fought two critical battles, each of which could have a significant impact on the company and its shares.
Politics, bias and prohibited advertising
Since the 2016 US presidential election, Facebook has been involuntarily a political & # 39; player & # 39; after accusations were revealed that the social media platform was of great importance in helping Russia to influence the process – and possibly the outcomes. Democrats also believe that Facebook is biased against them, while Republicans are convinced that they are being discriminated against.
Facebook is stuck between both sides, without any possibility of convincing both sides of the spectrum that they are incorrect. Of course this specific problem is not exclusive to Facebook; Twitter (NYSE 🙂 and Google (NASDAQ 🙂 are also accused of this.
U.S. Pat. Congress hearings on this subject in September 2018 and in April 2019 introduced the possibility of stricter supervision by Facebook and other social media platforms, which frighten investors. Moreover, it does not help that Twitter recently announced that it would ban all political ads from its platform, while Facebook said it would not even check political ads on its site.
Becoming the center of a heated political debate in which you are accused of misconduct by literally everyone is not a great way to boost sales.
More power, additional user data
If all this was not enough, Facebook was also the idea of ​​its own cryptocurrency, Libra, a public relations masterpiece.
With increasing calls from public and global governments to limit the power of Facebook, given the volume of user data it already collects – which has been accelerating since the news broke in 2018 about the Cambridge Analytica data breach – another develops another platform to extract even more user information, this time about finance, seems like a business error. Not to mention a certain way to work against governments.
Indeed, at the end of October, Congress again held a hearing in which CEO Mark Zuckerberg discussed his plans for the Libra project. But reading between the lines, this session was more about how Facebook would breach global central banks by developing a business-supported cryptocurrency and hamper the government's power to control fiat currencies, as well as the role that stable currencies should play within the US economy.
The Libra project seems almost dead at this point. Marquee partners including Mastercard (NYSE :), Visa (NYSE :), Stripe and PayPal (NASDAQ 🙂 have all been withdrawn. It would be smart for Facebook to indicate that they are reconsidering the premise without killing it completely. Strategically done, this would both be good for PR, while also reducing the pressure from US and international government regulators to reduce.
What happens next?
Can Facebook sufficiently withdraw from the spotlight and go back to the company that does it best, bypassing the full power of government supervision and restoring its reputation? Probably.
Although it is currently the victim of the regulatory heat that is directed at social media in general, it is unlikely that any legislation will discriminate against Facebook alone. In a worst-case scenario, the regulations become unnecessarily rough and this influences the way the company does business today. This would put sales under pressure and probably make future companies more priceless.
Social media will not disappear. And given the wide reach of Facebook along with the depth of its treasury, the company could probably still gain a strong advantage over competitors, no matter how harsh legislators can become.
Plus, as the recognized leader in its segment, Facebook is better equipped than its colleagues to handle change. After all, time and time again it has demonstrated its ability to effectively earn its money.
In addition, excessive regulation could dilute competition, which would probably encourage internal innovation, while driving even more users to the platforms of Facebook, which would increase the company's market share. For proof, this is exactly what happened when European GDPR regulations were levied against online advertisers in mid-2018. The law led to Facebook and Google (NASDAQ 🙂 having more relative power instead of less.
Perhaps the most important question is when will the controversy disappear? This is of course more difficult to project. Unfortunately, it can take a year or more if Facebook doesn't voluntarily come into the spotlight in any other way.
Nevertheless, users continue to flock to Facebook. It now has 2.4 billion monthly active users, 31% of the entire world population. Even with negative PR and increased, long-term regulatory control, those statistics remain difficult to bet against.
