How the Facebook Inc (FB) Video Gaffe Is a GOOD Thing

Advertisement

FB stock - How the Facebook Inc (FB) Video Gaffe Is a GOOD Thing

Source: The Crunchies! via Flickr

Facebook Inc (NASDAQ:FB) is under fire for overestimating a key video metric for more than two years, and FB stock is off as a result.

Facebook Inc FB stock logoAccording to a Wall Street Journal report, FB said the way it measured the average amount of time viewers spent watching videos was inflated because it was only taking into account views of more than three seconds. Facebook disclosed that the methodology overestimated video viewer times by anywhere from 60% to 80%.

Although it’s a black eye for FB, industry observers point out that the shoddy metric didn’t affect advertiser billing. It’s also just one of several ways Facebook measures the impact of videos.

Facebook stock was off 2% to 3% in Friday’s premarket trade, bringing shares down to the $127 level — right about where Facebook’s short-term 20-day moving average sits.

A couple of areas to watch on the FB stock chart include $126, where Facebook began its current bounce-back rally, and $125, which is where the 50-day moving average rests.

fb stock chartUPDATE: Facebook stock fell on the news, but the damage was contained. Shares gapped down just 1.6% at the open. That’s a significant move for a stock with a market cap of more than $370 billion, but it’s not like the market is freaking out about the implications of FB’s mistake.

FB Stock: No Harm, No Foul

And well that it shouldn’t. As Business Insider points out, there’s less to this disaster than it seems at first glance:

“Average video view time is just one metric Facebook offers advertisers in order to assess the impact of their videos. Many marketers look at total views or the view completion rate to determine whether their videos were a success or not.

Crucially, average video view time isn’t what Facebook calls a ‘billable event.’ Facebook doesn’t charge for any video ads that were viewed for less than 3-seconds. You can’t bid on ‘average view time.

“So many marketers may have simply assumed — as advertising executives including AB Inbev senior director of digital connections Azania Andrews and Laundry Service CEO Jason Stein have pointed out on Twitter — that people who only watched a video for less than three seconds (therefore users they didn’t pay to reach) were not included in the average view time metric anyway.”

However, this incident may force Facebook to be more transparent with the way it measures views and engagement. Clients already critical of the Facebook black box have just been handed a bandolier of ammunition.

As for anyone holding FB stock, this does nothing to change the investment thesis. On a bottom-line basis, the impact of the screw-up doesn’t appear to be material. Average view time is non-billable. Facebook said in a statement:

“As soon as we discovered the discrepancy, we fixed it. We informed our partners and made sure to put a notice in the product itself so that anyone who went into their dashboard could understand our error. We have also reviewed our other video metrics on the dashboard and have found that this has no impact on video numbers we have shared in the past, such as time spent watching video or the number of video views. We want our clients to know that this miscalculation has not and will not going forward have an impact on billing or how media mix models value their Facebook video investments.”

Let’s not forget that ad buyers can’t exactly afford to abandon Facebook and its billions of users, anyway.

Bottom Line

Headline risk is no fun, but it beats anything going wrong with the fundamentals. On that count, Facebook is running along just fine.

If anything, this hit to FB stock is a good time to pick up shares at a discount.

As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.

More From InvestorPlace


Article printed from InvestorPlace Media, https://investorplace.com/2016/09/facebook-inc-fb-stock-video-metric/.

©2024 InvestorPlace Media, LLC