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How Damaging To Facebook Will The Ad Boycott Campaign Be?

By xhaszzx.com (Haris Anwar/xhaszzx.com)Stock MarketsJun 30, 2020 10:01AM ET
xhaszzx.com/analysis/how-damaging-to-facebook-will-the-ad-boycott-campaign-be-200529248
How Damaging To Facebook Will The Ad Boycott Campaign Be?
By xhaszzx.com (Haris Anwar/xhaszzx.com)   |  Jun 30, 2020 10:01AM ET
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Once again Facebook (NASDAQ:FB)—the company and the stock—are under pressure. In an effort spearheaded by US civil rights groups to force the social media company to control the spread of hate speech and misinformation on its properties, a broad variety of global brands are pulling their advertising off Facebook's mammoth platform.

Investors are becoming increasingly nervous as the campaign's momentum accelerates. Their biggest concern: the financial outlook for the social media giant is becoming more uncertain, especially with the pandemic still raging, which has kept many businesses shut and their ad dollars unspent.

The company's shares reflect that unease. During the past five trading sessions, Facebook stock has dropped more than 8%.

FB Weekly TTM
FB Weekly TTM

Over the same period, the number of global brands that have announced they are halting their ad campaigns on Facebook has snowballed.

After Unilever (NYSE:UL) and Coca-Cola (NYSE:KO) said they were 'pausing' their spending on Facebook, Starbucks (NASDAQ:SBUX), Levi Strauss & Co. (NYSE:LEVI) and PepsiCo (NASDAQ:PEP) joined the boycott of Facebook and other social media platforms. Just yesterday, Ford (NYSE:F) and Clorox (NYSE:CLX) among others, joined the effort.

These brands are supporting the “#StopHateForProfit” campaign aimed at pushing Facebook and its peers to more effectively monitor and ban posts that glorify violence, divide and disinform the public, and promote racism and discrimination. According to the Wall Street Journal, based on a research note from MKM Partners which provided a link, there is a "spreadsheet that by the [Monday] evening listed more than 240 companies, organizations and individuals committed to the campaign."

Starbucks said Sunday that it would pause spending on all social media platforms while it carries out talks internally, with media partners and civil rights groups “in the effort to stop the spread of hate speech.”

Stock Suffers, But What About The Business?

As mentioned above, Facebook's stock has reacted negatively to this high-profile effort to influence the company’s editorial policy. Indeed, after reaching a record high of $245.19 last week, shares are now trading at $220.64 as of Monday's close.

For long-term investors, the primary question is how damaging these ad withdrawals could be for the company which is already seeing a substantial slowdown in its sales growth during the pandemic?

One major strength that distinguishes Facebook from other social media platforms is that its revenue stream is highly diversified. It doesn’t depend on big brands. While major advertisers like Unilever and Coca-Cola have garnered most of the 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 rose to $69.7 billion globally because of its millions of advertisers. For many businesses, especially those which rely on e-commerce and direct consumer contacts, abandoning Facebook isn’t a possibility.

That’s the reason that company's founder and CEO Mark Zuckerberg is focusing more on small businesses after the pandemic. Facebook is also making its properties more attractive, as a way to leverage the company’s 2.6 billion user-base in order to promote fresh areas of growth.

New E-Commerce Initiative

As part of that effort, Facebook last month unveiled new e-commerce features on all of the company's social media properties—which include Messenger, WhatsApp and Instagram. This new initiative by Facebook mainly targets small businesses which are struggling because of the pandemic. This effort will allow merchants 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 feature with a similar name. It will let retailers upload product catalogs to their Facebook page or Instagram profile. Shops will, at some point, be accessible across the entire network, providing retailers with a direct line to Facebook’s massive user base with one product catalog.

That said, the campaign against hate speech will have implications, but they'll likely be more damaging to the company’s reputation.

“Given the amount of noise this is drawing, this will have significant impact to Facebook’s business,” Wedbush Securities analyst Bradley Gastwirth wrote in a research note that was published by Bloomberg.

“Facebook needs to address this issue quickly and effectively in order to stop advertising exits from potentially spiraling out of control.”

A possible revenue hit from the big brands, combined with a global recession that's destroying many small businesses, could see mounting pressure on Facebook sales. The company is forecast to report just 1% revenue growth in the current quarter and a 7% jump in the third quarter, signalling a sharp reduction in Facebook revenue which often hits growth levels of more than 20%.

Bottom Line

If it faces additional ad bans and the boycott campaign extends beyond July, Facebook is likely to underperform other mega-cap tech stocks. Such a scenario could force Mark Zuckerberg & Co. to introduce more meaningful changes in order to check hate speech and misinformation.

That said, we see limited downside for Facebook from this negative development. There is no other social media platform as powerful to which brands could permanently shift their ad dollars.

How Damaging To Facebook Will The Ad Boycott Campaign Be?
 
How Damaging To Facebook Will The Ad Boycott Campaign Be?

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Comments (14)
eddie glass
eddie glass Jul 01, 2020 5:15AM ET
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glooboal.ist coom.panies just trying to b.ully fac.ebook to ce.nsor content for pol.itical mot.ives to innflu.ence 2020 o.utcome. currently inve.stiga.tions going on for section 230 viola.tioons which will be much more co.stly to comppan.ies if they lo.se those prrotecti.ons. t.wittter would be first to go imo
eddie glass
eddie glass Jul 01, 2020 5:15AM ET
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please note the irony that i had to put all those typos and periods in because i could not figure out what word this site was censoring from my post and disabling me from commenting
eddie glass
eddie glass Jul 01, 2020 5:10AM ET
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not at all, will be much more damaging to the companies violating 230 by censoring individuals/entities with intention to influence election outcomes
Robert Pomerantz
Robert Pomerantz Jun 30, 2020 8:19PM ET
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Big companies are using this platform of hate as an excuse . During the 2008 recession these companies also stopped ads simply because so many people without jobs are not spending money because of ads. Therefore it makes economic sense to cut ad spending.
Big Guy
Big Guy Jun 30, 2020 5:36PM ET
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use Parler
Big Guy
Big Guy Jun 30, 2020 5:36PM ET
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Can we please talk about the mass crime wave that clearly was triggered through social media and then immediately condoned by all of social media and corporate America
Kenneth Novak
Kenneth Novak Jun 30, 2020 2:33PM ET
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Can you blame anyone for voting for Trump after watching this sickening parade of pandering?
Kenneth Novak
Kenneth Novak Jun 30, 2020 2:32PM ET
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The pandering makes me ill.
figmarion 송
figmarion 송 Jun 30, 2020 1:36PM ET
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Ad companies are choking themselves. They can't live without a monopolized SNS called FB. It might look like ad companies are taking initiative. But after all these skits, Ads are the ones kneel before Zuckerburg. And I have chances to buy FB at a bargain price. Thank you~
Alberto Vazquez
Alberto Vazquez Jun 30, 2020 1:28PM ET
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Can someone please explain to me what is consider hate speech and misinformation? Is someone opinion misinformation? Back in the days when some people believed the earth was flat, was that misinformation? Who decides what information is true or not?
Mike Hobbins
Mike Hobbins Jun 30, 2020 1:07PM ET
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marc zukerberg would do a deal with the Devil if it meant he could have One more monopoly.
yui yui
yuiyui Jun 30, 2020 1:05PM ET
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This is in part a deep seeded desire for alternate platforms
Derek Probstfeld
Derek Probstfeld Jun 30, 2020 1:05PM ET
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They don't want a crack down on "hate speech;" they want a crack down on dissenting view points from the "woke mob's" current -- morally superior -- views.
Golden Berg
goldenberg Jun 30, 2020 10:35AM ET
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Not a fan of FB but these left wing "human rights" organization just want to ban Trump and conservatives speech before elections. They don't care about anything else
yui yui
yuiyui Jun 30, 2020 10:35AM ET
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Trump is probably not the only thing bothering people here. Lol. it's not like its the diametrical opposite reaction of the pro-Trump people who endorse him no matter what. It would seem more like part of a long laundry list and big business is very sensitive to boycotts and they recognize the commercial value of siding with their customer base
chrisP bacon
chrisP bacon Jun 30, 2020 10:35AM ET
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yui yui .  So if their customer base were Right wing extremists that purchase their products (as opposed to Left Wing Extremists) then that's all good by you in your very narrow minded world.
Lester Godinez
Lester Godinez Jun 30, 2020 3:47AM ET
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FB should not give in to these companies. They are the biggest social network. FB should offer these companies' competitors substantial discount to place ad on FB
Suman Jutur
Suman Jutur Jun 30, 2020 3:47AM ET
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you have no idea what is going on. this is not about pricing. wake up
matteo diaz
matteo diaz Jun 30, 2020 3:47AM ET
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the reason the companies left is due to a boycotte for Facebook not cracking down on hate speach
 
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