Should Facebook investors ride out the ad boycott—or cash out?

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The past week has been a maelstrom of controversy for tech giant Facebook, as a slew of companies are announcing they will boycott advertising on the site due to concerns over how the platform deals with hate speech and violence.

At this point, over 180 companies—including behemoths like Unilever, Honda, Verizon, Patagonia, as well as smaller firms—are boycotting Facebook ads, while others like Coca-Cola and Starbucks are pausing them.

On Friday, Facebook’s stock took an 8% nosedive, with massive volume of over 76 million, according to S&P Global data (large volume in trading typically means the stock’s move is more significant). And amid the spate of negative news for the tech giant, some investors may now be wondering: is it time to sell Facebook?

The ad boycott and the top line

Advertising is Facebook’s bread and butter, and with more companies announcing they are joining the boycott, the hit to Facebook’s business is still a question mark.

Bloomberg Intelligence estimated the social media giant could take as much as a $250 million hit to revenue owing to boycotts. But losing advertising revenue from these heavy-hitters likely won’t impact Facebook’s top line as much as some investors seem to think, analysts argue.

Two things that could work in Facebook’s favor, as Fortune recently reported: the boycott may be temporary, and Facebook uses an auction process for ads, which means other (perhaps smaller) companies could plug the holes.

Indeed, the boycott “would have to get hundreds, if not thousands of advertisers to join in order for there to be any real impact,” Colin Sebastian, an analyst Baird, recently told Fortune.

However, other analysts believe the problem poses more of a threat to Facebook than merely a PR disaster. “Given the amount of noise this is drawing, this will have significant impact to Facebook’s business,” Wedbush Securities’ Bradley Gastwirth wrote in a note. He added “Facebook needs to address this issue quickly and effectively in order to stop advertising exits from potentially spiraling out of control.”

But even if a swath of companies boycott Facebook’s ads, the impact to the company’s 2020 revenues will likely be muted, Wedbush’s Michael Pachter believes. Pachter says the move is rather “toothless,” and that these companies “want to advertise there, but they also want their consumers to feel like they’re good companies that reflect their customer’s values. If [CEO Mark] Zuckerberg can align with [these companies’] customers’ values, [they’ll] be right back,” he suggests to Fortune. Indeed, Morningstar’s Ali Mogharabi writes that he expects “most of the advertisers will return to Facebook given its more than 2.6 billion users,” Mogharabi wrote on Monday.

Zuckerberg has already made a move to quell concerns over the site’s policing: on Friday, the CEO announced the company would take some measures including flagging some posts and cracking down on “a wider category of hateful content in ads,” Zuckerberg wrote in a post Friday.

But …read more

Source:: Fortune

      

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