Facebook’s latest string of controversies is beginning to seriously weigh on its stock performance — a clear indication of the tech giant’s vulnerability to long-term business headwinds, even if its ads business continues to grow for now.
The big picture: In the past, investors have mostly shrugged at blows to Facebook’s reputation, including Capitol Hill hearings and leaks, and instead have focused on ad and user growth as metrics for success.
Details: Facebook’s share price is down roughly 15% since it hit an all-time high on Sept. 7, the biggest dip since its decline at the onset of the pandemic and the third-worst negative streak in its history.
Its share price took a major hit Monday following a whistleblower’s interview with CBS’ “60 Minutes” Sunday and a major outage that shut down its Facebook, Instagram and WhatsApp apps globally for hours. Facebook’s stock has been declining for weeks, following the release of a series of reports from The Wall Street Journal detailing the whistleblower’s findings and an admission by the company on Sept. 22 that changes to Apple’s privacy terms will continue to hurt its ads business.
Be smart: Facebook’s business has for years withstood controversy and scrutiny, in large part thanks to the millions of small businesses that are hooked on cheap Facebook ads.
Even a major advertiser boycott around content moderation last year barely dented the company’s revenue.
But now Facebook is facing an existential crisis: What happens when some of its rivals, free from the regulatory attention beating down on Facebook, begin to chip away at its market share and are left free to innovate faster?
TikTok last week said it hit 1 billion users worldwide. Snapchat posted higher user and revenue growth last quarter. Facebook’s main app, meanwhile, continues to show signs of stagnant user growth. Facebook’s social ads business is vulnerable to Apple’s privacy changes in a way that Google’s and Amazon’s search ads businesses are not.
Between the lines: Facebook’s strategy so far has been to focus its attention on what’s next. The company is building a new Metaverse product group in an effort to beef up hardware sales and increase engagement. It’s also looking to launch a virtual wallet alongside a new digital payments system.
While Facebook has frequently pivoted its focus in the past, its new ambitions will be met with far greater regulatory scrutiny than before, and that could handicap its ability to get ahead of competitors.
What’s next: Some critics argue that by focusing publicly on its new products, Facebook can distract regulators and investors from the problems with its current social media and messaging products, which have for years struggled with issues like misinformation and hate speech. But pundits’ reactions to Facebook’s latest drama suggest that a distraction plan may not work.
“This is now hitting the point where people have serious questions,” CNBC anchor Jim Cramer said on-air Monday. “I felt like that series was devastating,” he said, referring to The Wall Street Journal reports. “I think that those documents, there was not a lot of truth expressed by the company versus what we read.”