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Facebook Idea Proposal (FB)

Facebook Idea Proposal (FB)
 

Is Facebook’s ad revenue growth threatened by the data privacy and fake news scandals engulfing the platform?

Report Available: April 24, 2018

 

Blueshift’s initial research found FB embroiled in scandal around how well it protects user data and how some groups have used the platform to spread erroneous information. The controversies had not yet hit FB’s bottom line as of the end 2017, as Q4 revenues and profits continued to soar. However, there are some troubling signs, including a decline in hours spent on the platform, a plateauing user base in North America, and deteriorating consumer sentiment about FB.

 

Observations

  1. FB has been under fire since it was revealed in mid-March that it allowed a consulting firm working for Donald Trump’s campaign, Cambridge Analytica, to access data from as many as 50 million users. The privacy scandal has led to calls for government regulation of how behemoths like FB and GOOG/GOOGL safeguard consumer data. On Monday, Missouri’s attorney general opened an investigation into FB’s use of personal data, demanding FB disclose every time it has shared user information with political campaigns. Shares of FB have dropped 16% since March 16.
  2. FB was already taking heat for its role in the spread of fake news during the 2016 election. In an effort to stave off criticism, the company adjusted its news feed algorithms to boost the visibility of content from friends and family while de-emphasizing “viral videos” and other items that people view but do not tend to engage with. CEO Mark Zuckerberg acknowledged that the changes reduced the time that users spent on FB by about 5% in Q4.
  3. Despite the swirling controversies, FB’s Q4 earnings and revenue again topped analyst expectations, with ad revenue climbing 48% year-over-year. A recent report suggests very few advertisers are changing how they use FB. However, in addition to the decline in usage stemming from news feed adjustments, the number of daily active users in the U.S. and Canada dipped during the fourth quarter, a sign that the platform is a mature product in its major markets.
  4. A poll following the Cambridge Analytica scandal found consumer sentiment around FB deteriorating. FB’s net favorability rating fell 28% from last October. A separate survey last fall found more people greatly distrust FB than other tech giants like AMZN and MSFT. FB continues to make changes to its privacy settings in an attempt to be more transparent and regain user confidence.
  5. The scandals associated with FB do not appear to have hit the wildly popular photo sharing app Instagram that FB acquired in 2012. About 60% of respondents to an October 2017 survey said they were not aware that FB owns Instagram. Revenues for Instagram are forecast to top $6.8 billion in 2018.
  6. Blueshift Research reports have been bullish on FB since 2012. Our last report, in January 2016, noted some increasing challenges for the company’s flagship platform, but predicted continued strong revenue growth, led by advertisers investing in video.

 

Will the scandals surrounding FB lead to increased government regulation? What might such regulation look like and how could it affect FB’s business model? Are advertisers seeing any change in user engagement? Are they changing their spending plans for FB ads? Are they worried the controversies could rub off on brands that advertise on the platform? Where else can they go if they reduce their FB spending? Can SNAP siphon ad dollars from FB? Will the challenges spill over to Instagram? To answer these and other questions, Blueshift will gather data and issue a market research report from independent sources in the following areas: Advertisers and agencies, Publishers and content marketers, Social media analytics firms, and Industry specialists.

 

Companies: Facebook Inc. (FB), Alphabet Inc. (GOOG/GOOGL), Snap Inc. (SNAP)

 

Research Begins: April 9, 2018

 

Are you aware Intro-act, our corporate access solution, is part of the Blueshift Research ecosystem? To learn more, go toIntro-act.comor check out our video suite.