Ignore News About ‘Fake News’ at Facebook Inc (FB)

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Facebook Inc (NASDAQ:FB) is in the news — and not for particularly good reasons. Concerns about the company’s advertising policies have created headlines over the past few weeks. So far, there’s been little damage to Facebook stock; in fact, FB stock is trading just off an all-time high reached in late July.

But any weakness in Facebook shares stemming from the recent news should be treated as a buying opportunity — like every previous decline in Facebook stock has been.

There are legitimate societal concerns about Facebook’s dominance, and its ability to shape social and political narratives. Facebook can and will work on that front. What investors should be focused on, however, is that it’s precisely Facebook’s dominance that makes Facebook stock so attractive.

Bad News and Facebook Stock

Facebook’s content has come under fire this week, for two separate reasons:

1) A ProPublica investigation showed that marketers could target users with terms like “Jew haters” and “history of why Jews ruin the world.” Facebook in response has disabled those targeting fields while it attempts to create “the right processes” to prevent such targeting.

2) The company likely will testify before the US Senate after it admitted earlier this month that it had sold at least $100,000 in advertisements to Russian-linked users potentially trying to influence the US presidential election.

Facebook stock continues to soar
Source: Shutterstock

Both stories, along with actions taken by the company after the Charlottesville riots, have contributed to a wider sense that Facebook needs to be much more proactive in how it manages its platform for both users and advertisers.

And Facebook isn’t alone.

Twitter Inc (NYSE:TWTR) has reported that it deleted nearly 300,000 terror-related accounts so far this year. Alphabet Inc (NASDAQ:GOOGL) still is dealing with an advertiser boycott of its YouTube platform due to ads being posted next to extremist content.

The balance between free speech and acceptable use admittedly is a thorny issue for Facebook and its peers. And it’s an issue that does affect Facebook stock. On this site last week, fellow contributor Ian Bezek made an intriguing argument that responding to political risk could hurt margins and pressure Facebook shares. So far, FB stock has been unaffected. But I can understand why some investors might believe that this will change.

Stay Patient With Facebook Stock

One key point about the current controversy is that it shows just how dominant the Facebook platform truly is. It can literally swing elections, at least according to some observers. This doesn’t mean Facebook is perfect; it doesn’t mean its actions are above the law.

Indeed, Facebook needs to respond appropriately — for both users and advertisers. Users want a “clean” platform (for lack of a better term). Wholesome — and huge — sponsors like Procter & Gamble Co (NYSE:PG) don’t want their ads running next to bigoted or pornographic content.

But there should be some faith that Facebook will strike the right balance — or close to it. And most observers understand that the issue isn’t an easy one. The balance between free speech and offensive content is quite literally one of the most-discussed and most-studied aspects of modern culture.

There isn’t a simple answer.

To some Facebook stock bears, that leaves Facebook in a no-win position. But the converse might just as easily be true. Facebook simply needs to show that it’s trying. Few, if any, users expect the company to eradicate trolls, verify every news story, and judge every advertisement. If the company and the platform are taking constructive steps, that should be enough to keep the user base intact. And that user base still makes Facebook one of the most profitable companies in the world.

Bull Case for Facebook Stock Remains

I’m simply not ready to believe that political risk or content questions are going to break Facebook’s moat. It’s not as if there’s another competitor on the horizon. Growth is slowing at Snap Inc’s (NYSE:SNAP) Snapchat platform , while Twitter’s user base isn’t growing at all and it has a troll problem itself. I’m skeptical Facebook will lose users simply based on the concerns of the past week.

Advertisers meanwhile continue to target digital marketing — and have little choice besides Facebook and Google. And no government is going to shut down Facebook or somehow restrict its content.

After spending time at a retail brokerage, Vince Martin has covered the financial industry for close to a decade for InvestorPlace.com and other outlets.

Meanwhile, FB stock still looks reasonably valued, and elsewhere there is some good news. Reports argue that the company could finally enter the massive Chinese market as soon as 2018. Monetization of WhatsApp and Instagram remains on the horizon.

The growth story at Facebook isn’t over. And that means that rise in Facebook stock isn’t over either.

As of this writing, Vince Martin has no positions in any securities mentioned.


Article printed from InvestorPlace Media, https://investorplace.com/2017/09/ignore-fake-news-facebook-inc-fb/.

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