This Could Send Facebook Stock to the Guillotine

In retrospect, one has to wonder if Facebook Inc (NASDAQ:FB) CEO Mark Zuckerberg knew the true depth of the pushback that was brewing when he insisted a few weeks ago that his company wasn’t a media company, and never would be. Some opined at the time he was making the point simply because he didn’t want Facebook stock to be valued like a media stock, which tend to command lower multiples.

This Could Send Facebook Stock to the Guillotine

Source: TY Lim /

Instead, observers suggested he was enjoying keeping FB stock at a firm price by positioning it as a technology name.

In the meantime though, the extent of how much “fake” news that appears on Facebook has been made clear … and it’s scary. If for some reason Facebook stock was pegged as a media investment rather than a consumer-tech name, culpability — and liability — could skyrocket.

Oh, and ad revenue could plunge if FB decided to crack down on all the fake news stories.

A Foggy But Undeniable Problem for FB

The exact amount of fake news that appears to be real news via Facebook isn’t exactly clear. What is clear, however, is that it’s too much, simply because too many users assume much of what they read is the truth even when it’s not.

Granted, it’s not entirely their fault. The propagators of fake news are very good at what they do, injecting enough well-known truth to be credible, and polishing up the commentary and the website where it’s found to look like a clone of reputable news venues. Nevertheless, fake news treated as real news presents a conundrum for Facebook, in that the social networking platform makes it all too easy to make a lie go viral.

It’s not a simple matter of using humans to filter out legitimate news from the nonsense, however, and even if it was, owners of Facebook stock may not actually want Zuckerberg to pull that trigger.

The specifics: Take the statistics with a grain of salt, but Forbes contributor Howard Yu calculates that fake news generates 54.2% of the shares, reactions and comments facilitated by Facebook, whereas real news only prodded 45.8% of the site’s total user activity.

Granted, the review that created the data was gathered amid contentious presidential campaigning. Still, even if the potential for the spread of fake news was maxed out over the course of this year, there’s clearly too much opportunity to abuse the platform.

Unclear Impact for FB Stock

Were Zuckerberg able to weed out all the fake news and limit the social networking site’s news feed to only legitimate stories, the fact of the matter is, the impact it may have on ad revenue is unclear. Suggestions that half of the company’s revenue is driven by fake news seems outrageous, until one accepts the reality that the more outrageous the story, the more often it’s viewed … by those who love the message and those who hate it.

Whatever the dollar value is to fake news, it’s not small.

It’s not just a revenue headwind that poses a threat to the value of Facebook stock, however. There are legal and logistical headwinds on the radar too. Both could prove costly.

Whether they know it or not, FB users absolve the company from any liability that may arise due to misleading news … part of the fine print nobody reads when they sign up as a member. But, in that Facebook now acknowledges fake news is a problem big enough that it must be dealt with, the company tacitly concedes that it at least has some modicum of editorial control over the commentaries it allows to be posted at the site.

And therein lies the rub; knowing but willfully ignoring opens the door to liability, but knowing and then attempting to address the fake news problem (either through human-aggregation or artificial intelligence or writing the news itself) makes FB a de facto media company despite Zuckerberg’s insistence that it isn’t.

It’s not a legal theory that has been tested in a courtroom … yet. But, it’s only a matter of time before the problem comes to a head for Facebook stock. And, one way or another, money will become the weapon. That’s not a war FB wants to enter.

Bottom Line for Facebook Stock

Solution? That’s just it. There isn’t one … at least not an easy one for FB stock.’s Will Oremus described the problem with near perfection just a few days ago, explaining:

“The ultimate denial, and the underlying purpose of it all, is to deny the very possibility of any tension between Facebook’s own interests and the interests of society. Facebook, by Zuckerberg’s lights, is simply a powerful tool for making the world more open and connected. And if that means Trump is elected U.S. president, there must have been good reasons for his election that had nothing to do with Facebook. Or, in Zuckerberg’s words, “voters make decisions based on their lived experience” — as if Facebook weren’t a part of that, as if its $335 billion market value weren’t a function of the incredible degree to which it has managed to ingratiate itself into people’s daily lives, as if our online and offline lives weren’t now irrevocably intertwined. Either the internal contradiction of Zuckerberg’s position is lost on him or, more likely, he recognizes it but refuses to acknowledge it.”

The thing is, if Zuckerberg decides not to choose, the market will make the choice for him. That’s the last decision owners of FB stock want ceded to the public though, as the masses will ultimately view the company’s bottom line as expendable. This could be a big problem for Facebook shares in the future.

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

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