Photo credit: George Frey / Bloomberg
Photo credit: George Frey / Bloomberg
A growing list of advertisers from Facebook Inc. is aimed at stopping spending on social media, undermining the company’s sales prospects and putting further pressure on its share price.
Starbucks Corp., Levi Strauss & Co., PepsiCo Inc. and Diageo Plc was one of the most recent companies to say they are cutting advertising spending, part of an exodus aimed at pressuring Facebook and its peers to suppress posts that glorify violence, divide and misinform the public, and promote racism. and discrimination.
No single company can significantly affect growth on Facebook, which generated $ 17.7 billion in revenue in the last quarter alone. But a spike in the count increases pressure on other brands to follow suit, and when combined with a pandemic-fueled economic slowdown, the threat to Facebook deepens.
“Given the amount of noise this generates, this will have a significant impact on Facebook’s business,” Wedbush Securities analyst Bradley Gastwirth wrote in a research note. “Facebook needs to address this problem quickly and effectively to prevent ad outs from spiraling out of control.”
As more brands publicize plans to join boycotts or curb ad spending, Facebook’s actions remain under pressure. The stock fell 8.3% on Friday after Unilever, one of the world’s largest advertisers, said it would suspend spending on Facebook properties this year, eliminating $ 56 billion in market value and shave the CEO Mark Zuckerberg’s net worth of over $ 7 billion. The shares closed at $ 216.08 on Friday after hitting a record $ 242.24 the previous Tuesday.
Facebook was already preparing for weakness in the second quarter, which ends this week. Chief Financial Officer Dave Wehner celebrated in April, the earnings call for “the potential for an even more severe contraction in the advertising industry.”
The number of coronavirus cases has increased in the intervening months, prompting many parts of the country to curb or reverse reopening efforts and give advertisers additional justification to curb marketing spending. Facebook will post 1% revenue growth in the June period, followed by a 7% increase in the third quarter, according to current analyst projections, by far the smallest quarterly growth increase since the company went into business. made public.
Starbucks said Sunday it would pause spending on all social media platforms as it conducts internal conversations with media partners and civil rights groups “in an effort to stop the spread of hate speech.”
Trump posts
While some companies target social media in general, including Twitter Inc., many are targeting Facebook specifically. Zuckerberg has been more reluctant to limit the speech, particularly the controversial posts by the President of the United States, Donald Trump, saying that he does not want Facebook to be an arbiter of what is true.
That prompted a civil rights consortium and other advocacy groups, including Color of Change and the Anti-Defamation League, to urge advertisers to stop spending on Facebook-owned platforms in July to protest the company’s policies.
Zuckerberg responded to mounting criticism on Friday, saying Facebook would tag all voting-related posts with a link that encourages users to check out their new election information center. The social network also expanded its definition of prohibited hate speech for advertising.
“We understand that people want to pressure Facebook to do more,” Facebook Vice President Nick Clegg said Sunday on CNN’s Trusted Sources. “So we made those additional announcements on Friday. That is why we will continue to redouble our efforts, because, you know, we have a zero tolerance approach to hate speech. “
The Anti-Defamation League called the changes “small.”
The advertiser stampede, combined with lobbying by civil rights groups, leaves Zuckerberg in trouble. It could take further steps to reduce harmful content, but that risks alienating free speech advocates and Trump supporters who have argued that Facebook is censoring political speech and suppressing conservative voices.
Different exodus
It could also bear the gamble that this ad pause be short-lived, just like advertising boycotts on social media in the past. But this exodus as distinct, Bernstein Securities analyst Mark Shmulik wrote in a research note on Saturday. There is increased pressure to publicly demonstrate that the brands support civil rights groups, he said. “The current environment is very different,” wrote Shmulik. “It is very visible who participates and who does not participate in the boycott where the silence of the brand [equals] be complicit. “
Will Zuckerberg move? While major brands like Unilever and Coca-Cola have earned the most headlines, the vast majority of Facebook’s 8 million advertisers are small businesses, many of which rely heavily on Facebook advertising for sales. . Some in the advertising industry do not believe that these businesses, particularly those in commerce and direct sales to the consumer, can really afford to stop spending.
“Going out for an entire month would really hurt your business,” Deutsche Bank analyst Lloyd Walmsley said earlier this week. “Is it too much to ask”.
In its outreach to advertisers last week, Facebook has said it does not intend to make sales-based decisions. “We have been consistent in that we do not make policy changes linked to income pressure,” Facebook said Wednesday in a memo obtained by Bloomberg News. “We establish our policies based on principles rather than commercial interests.”
Regardless of the additional moves Facebook makes, there are reasons to believe that the advertisers’ exit won’t end soon. “Advertisers who have seen their own ads posted against hateful and horrible content on Facebook (racist and anti-Semitic poison) are finally saying ‘enough,'” Jonathan Greenblatt, CEO of the Anti-Defamation League, said Friday. interview with Bloomberg Television. “Our phones have been ringing with advertisers. I can tell that more will come.
– With assistance from Yueqi Yang
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