Financially and technically, Facebook Inc (NASDAQ:FB) seems to have everything going its way. Facebook’s latest video announcements have it playing hardball against Amazon.com, Inc. (NASDAQ:AMZN) and Netflix, Inc. (NASDAQ:NFLX) in the race to dominate the next generation of video. The company is rapidly approaching 2 billion users in a world with 7 billion people.
Facebook stock’s fourth-quarter results were nothing short of awe-inspiring, as InvestorPlace writer Tom Taulli reported, net income rose 128% year-over-year, compared with 2015, as revenue rose 53%.
The revenue run rate is still one-third that of Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL), but the companies are competing ever-more fiercely for the same internet advertisers and, increasingly, FB is winning.
So why is Facebook stock sitting below its 2017 high? Why did it rise only 2% on those incredible earnings? Why does FB stock seem stuck in first gear?
Call it the perils of leadership.
Facebook Stock and Political Opposition
Facebook has become a mirror on the human condition, and civilization’s ills have come calling on it.
Gangs are now waging their turf wars on the service. Its human decision-making is opaque, and people are being destroyed by that without recourse.
Worse, despite FB’s insistence that it’s not a media company, and that it is not political in any way, people are treating it as both.
Many conservatives tied to the Trump Administration now count Facebook as an enemy and suspect all those who work alongside it. This is happening even while FB goes to unprecedented lengths to fight terrorist propaganda, working alongside law enforcement and security agencies.
The truth or falsehood of the political charges should be irrelevant to an investor. What matters is that Facebook is seen to be a media company, and seen to be a political actor, that it’s being treated as such, and that responding to all this is expected to cost money, reducing margins and net income.
Fortunately, FB stock has a way to fight back.
FB Stock: A Turing Test
Facebook stock is in a race against billions of people who want its network to pass a Turing Test. Its network must pretend to be human, and to act humanely, without using people to do it.
Here are just some examples of what I’m talking about.
FB must act against fake news, phishing profiles created by criminals, charges of political favoritism, plus millions of individual complaints about the actions of third parties, large and small, in an automated fashion.
This is because software scales in ways people cannot. If Facebook must go to court constantly in order to protect itself, it can’t continue to grow. It must automate its own self-policing, as with a recent patent application aimed at fighting a photo-tag spambot.
At the same time, FB stock must fight charges that its software is becoming bloated, dense and difficult to use. It must accept the increased complexity of video rights management in this regard. It also must accept the fact that mistakes will be made by software acting in human ways, just as people make mistakes.
Fortunately, all I’m describing is a need for more artificial intelligence, and that happens to be the area in software where Facebook is putting a lot of its money right now.
The company’s recent delivery of a system for identifying the content of photos, and allowing them to be searched as text is searched, is just the tip of the iceberg for what’s ahead for Facebook stock.
By fighting for its own survival with artificial intelligence, FB stock is pointing the way to a future defined by artificial intelligence. This is less about creating an “artificial assistant,” like Amazon’s Alexa or Google Home, both advertised during last week’s Super Bowl, and more about creating intelligence within the network so questions are answered before they are asked.
If Facebook stock can succeed here, it can overcome both its own problems and a lot of yours, to mutual profit.
Dana Blankenhorn is a financial and technology journalist. He is the author of the sci-fi novella Into the Cloud , available at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing, he owned shares in GOOGL, AMZN and FB.
