Since announcing earnings that blew past estimates on Feb. 2, Facebook Inc (NASDAQ:FB) stock is up, but only by 4.5%. There are technical reasons for this: Facebook stock had already risen nearly 15% the previous month as investors anticipated good news. But the failure to rise further has dropped the price-to-earnings ratio to an almost-reasonable 39.
FB stock is becoming like a regular stock — its best days may be behind it.
Here at InvestorPlace, most writers aren’t buying the pause. The stock “won’t stop rolling” any time soon, writes Laura Hoy. Facebook stock is itching to break all-time highs, writes Serge Berger. Forget Snap Inc (NYSE:SNAP) and buy FB stock, writes Will Ashworth. Or follow Chris Tyler and get 470% returns on it with options.
Maybe. But Facebook stock is all about gathering, and monetizing, people’s attention. Is it possible the attention economy has peaked?
Are FB Ads Working?
While some ad men reflexively parrot the Facebook line about its ad technology, Copyranter Mark Duffy wonders whether Facebook advertising works at all. Its numbers just can’t be trusted, he writes, and there is no reliable way to independently verify them.
Does the emperor have any clothes?
While criticizing the way the traditional ad industry does things, Facebook CEO Mark Zuckerberg has done a little soul-searching, writing a 6,000 word manifesto followed by a tour of the Deep South.
Zuckerberg realizes the attention economy FB built has reached an inflection point, that not all attention on its site is good or even useful.
Chief operating officer Sheryl Sandberg even admitted to an advertising conference that Facebook’s ad metrics may be inflated and that it’s getting harder to bring in new ad customers, especially smaller businesses. A third of America’s small businesses have no web presence at all, she admitted.
How can Facebook stock grow in that environment?
FB Stock and the Rejection of Debate
A second problem for Facebook stock, one Zuckerberg fed with word salad in his manifesto, is that hearts have become increasingly hardened, especially since the November election. People are rejecting one another rather than engaging, going into their separate corners and this spells trouble for FB’s attention economy.
At Adweek, Jay Friedman calls this “the Trump problem” and it’s a real thing. Democrats can’t get over the election, Republicans continue to gloat over it, and no one wants to engage in discussion anymore.
Facebook’s response is to turn itself into just another way to watch TV. This increases the time people spend on the site, but it may not increase their engagement with advertisers, who are increasingly resorting to stunts to get some of that attention.
This is a global problem. FB is being charged with aiding insurrection by letting extremists use its service. Its efforts against trolls have still not borne fruit and scams on the service are increasing, not decreasing.
I warned about this a few weeks ago, writing that fake news, scams and inappropriate demands for attention are threatening the credibility of the service, and that it is costing Facebook a lot of money to self-police.
The Bottom Line for Facebook Stock
The bottom line is that danger remains. Online interaction is a sensitive thing; the desire to interact can rise or fall, and with Facebook having now reached a significant percentage of the world’s population, its margins increasingly depend on the quality of the interaction it provides, not just the quantity.
I believe the market’s “spidey sense” is tingling. Facebook’s limited gains since its earnings came out show that FB stock investors are on to these dangers, they’re on to these costs and that Facebook stock’s 2017 could be much more difficult than its 2016 was.
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 FB.
