Once again Facebook (NASDAQ 🙂 – the company and the stock – are under pressure. In an effort led by U.S. civil rights organizations to compel the social media company to control the spread of hate speech and misinformation about its properties, a wide variety of global brands are pulling their ads from Facebook's massive platform.
Investors are getting more and more nervous as the campaign momentum accelerates. Their main concern: the financial outlook for the social media giant is becoming more uncertain, especially as the pandemic continues to rage, closing many businesses and spending their ad dollars.
The company's shares reflect that uneasiness. During the past five trading sessions, the Facebook share has fallen by more than 8%.
During the same period, the number of global brands that announced they would discontinue their ad campaigns on Facebook became snowball.
After Unilever (NYSE 🙂 and Coca-Cola (NYSE 🙂 said they were pausing their spending on Facebook & # 39 ;, Starbucks (NASDAQ :), Levi Strauss & Co. (NYSE 🙂 and PepsiCo (NASDAQ 🙂 added to the boycott of Facebook and other social media platforms. Yesterday, Ford (NYSE 🙂 and Clorox (NYSE :), among others, joined the effort.
These brands support the "#StopHateForProfit" campaign aimed at encouraging Facebook and its colleagues to better monitor and ban messages that glorify violence, divide the public and distribute disinformation and racism and promote discrimination. According to the Wall Street Journal, based on a research note from MKM Partners who provided a link, there is a "spreadsheet that by night [Monday] listed more than 240 companies, organizations, and individuals who committed to the campaign."
Starbucks said on Sunday that it would interrupt spending on all social media platforms as it internally engages with media partners and civil rights organizations "in an effort to stop the spread of hate speech."
Stock suffers, but what about the company?
As mentioned above, Facebook's share has reacted negatively to this high-profile attempt to influence the company's editorial policy. Indeed, after reaching a record high of $ 245.19 last week, the stock is now trading at $ 220.64 as of Monday's end.
For long-term investors, the main question is how damaging this ad withdrawal could be to the company that is already seeing a significant slowdown in its revenue growth during the pandemic?
A major strength that distinguishes Facebook from other social media platforms is that it is highly diversified. It does not depend on major brands. While major advertisers such as Unilever and Coca-Cola have made the most headlines, the vast majority of Facebook's 8 million advertisers are small businesses, many of whom rely heavily on Facebook's global reach for their sales.
Last year, Facebook ad sales worldwide rose to $ 69.7 billion due to millions of advertisers. For many companies, especially companies that depend on e-commerce and direct consumer contacts, giving up Facebook is not an option.
That's why the company's founder and CEO, Mark Zuckerberg, focuses more on small businesses after the pandemic. Facebook is also making its properties more attractive, as a way of leveraging the company's 2.6 billion user base to promote new growth areas.
New E-Commerce Initiative
As part of that effort, Facebook unveiled new ecommerce features on all of the company's social media properties last month, including Messenger, WhatsApp and Instagram. This new Facebook initiative is mainly aimed at small businesses that are struggling because of the pandemic. This effort allows traders to set up their own e-tail stores on the Facebook and Instagram platforms.
Called Shops, the primary product is a new version of an existing Facebook function with a similar name. This allows retailers to upload product catalogs to their Facebook page or Instagram profile. Retail stores will be accessible across the network at some point, giving retailers a direct line to Facebook's massive user base with a single product catalog.
That said, the anti-hatred campaign has implications, but they are likely to be more damaging to the company's reputation.
"Given the amount of noise this draws, it will have a significant impact on Facebook's business," Wedbush Securities analyst Bradley Gastwirth wrote in a research note published by Bloomberg.
"Facebook needs to address this issue quickly and effectively to prevent ad outlets from getting out of hand."
A potential increase in sales for the big brands, coupled with a global recession that is destroying many small businesses, could put increasing pressure on sales on Facebook. The company is expected to report only 1% sales growth in the current quarter and an increase of 7% in the third quarter, indicating a sharp drop in Facebook sales, often reaching growth rates above 20%.
Bottom Line
When faced with additional ad bans and the boycott campaign extending beyond July, Facebook is likely to underperform other mega-cap tech stocks. Such a scenario would be Mark Zuckerberg & Co. can compel more meaningful changes to control hate speech and misinformation.
Having said that, we see a limited disadvantage for Facebook due to this negative development. No other social media platform is as powerful to which brands could permanently shift their ad dollars.
