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Is the Burn Already Baked into Facebook Earnings?

October 25, 2021

Is the Burn Already Baked into Facebook Earnings?

In the last year, Facebook has dominated headlines...and not in a good way. The company faces issues ranging from censorship, hate speech, mental health concerns, and impact on teens, to platform-wide outages that have translated to an overarching perception of prioritizing revenue and growth vs. repairing perceived fault lines. So it's no surprise that Facebook's sentiment is taking a hit. Overall consumer happiness has dropped -7% YoY and is continuing lower, currently registering 52% positive.

On top of Facebook's own internal strife, Apple dealt a heavy blow to its budding ad business when it unrolled an iOS privacy update kneecapping Facebook's ability to deliver highly targeted ads. Facebook warned that Apple's opt-in policy requiring developers to get express consent to track some data from mobile devices to provide "personalized" ads would have a serious impact on ad efficacy months ago...and this warning has come to fruition. A month ago, Facebook's own VP of Product Marketing admitted that advertising costs for previously expected business outcomes have increased, and measuring campaigns on its platform is more difficult and sometimes inaccurate. LikeFolio data confirms that brand discovery and sales conversions are waning. Consumer mentions of discovering a brand or product (awareness) and purchasing a brand or product (conversion) have dropped by more than 20% for both Facebook and Instagram.

While we can't know if this is due to decreased advertising spend or less effective ad targeting...or perhaps a mix of both...we do know this trend isn't good for Facebook's ad business, especially ahead of a critical holiday season. But is this bad news already baked into the stock? Perhaps. Shares have fallen -15% from September highs. And the company remains the overwhelming leader when it comes to the size of its userbase, with more than 3.5 billion monthly active users across its suite of apps. When Facebook's suite of apps went down in October, we recorded the largest company volume spike to date, with more than 2.3 million mentions related to the company. Talk about a captive audience. In addition, the company has set its sights on incorporating this massive social map into a virtual world, or "Metaverse." Facebook reports Q3 earnings on October 25 after the bell.

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