As Facebook, Inc. (NASDAQ:FB) has grown in popularity and become the dominant player in social media, it stood to reason that founder and CEO Mark Zuckerberg and his cronies would eventually find a way to corrupt their own product with politics — which is bad for FB stock in the long term.
The deal is this: FB stock is driven entirely by ad revenues. Advertisers believe that a certain number of people view their ads, and they earn some kind of return on investment on those ads.
Algorithm or Agenda
Facebook engages users in many different ways, and the number of ways has both increased and become more complicated over the past few years.
However, because Facebook is so complicated and a black box when it comes to how the platform engages users and vice-versa, it is very easy for management to just wave their hands and call things “algorithms”.
In doing so, it permits Zuckerberg to press his political agenda while suppressing the opinions and engagement of others. Now, it’s his right to do that. Facebook may be publicly held, but it is a private enterprise and isn’t beholden to anyone as far as how it chooses to run its platform.
Zuckerberg announced in January that “The first changes you’ll see will be in News Feed, where you can expect to see more from your friends, family and groups. As we roll this out, you’ll see less public content like posts from businesses, brands and media. And the public content you see more will be held to the same standard — it should encourage meaningful interactions between people.”
That sounds just lovely, and so does this: “We feel a responsibility to make sure our services aren’t just fun to use, but also good for people’s well-being. So we’ve studied this trend carefully by looking at the academic research and doing our own research with leading experts at universities.The research shows that when we use social media to connect with people we care about, it can be good for our well-being.”
Since this change to be “good for people’s well-being,” total engagement on Donald Trump’s Facebook posts have declined by 45%, according to NewsWhip. This comes despite the fact that Trump’s frequency of posting did not change. Meanwhile, engagement for Senator Bernie Sanders and Senator Elizabeth Warren were essentially flat.
If you think this is a coincidence, you haven’t been paying attention. Zuckerberg’s politics are well-known.
How Facebook’s Politics Affect FB Stock
Why does this matter for FB stock shareholders? Anytime a business wades into politics, it is bad for business. For starters, it is terrible PR. The optics are bad. In attempting to drive a political agenda, it creates the appearance of a CEO that is more distracted by politics than by just running his business.
Moreover, though, anytime a business starts mucking about in politics, it immediately alienates 50% of its users. It’s easy to whisk that away and say that, with 1.2 billion alleged average monthly users, who cares? Those on the opposite side of the political fence aren’t just going to pick up and leave. They probably won’t.
However, advertisers might. Over time, if enough advertisers get annoyed by this behavior, and engagement by users on content that skews to a certain political demographic declines, advertisers who target that demographic will naturally go elsewhere. The impact of Facebook stock price might be huge.
That’s the potential problem facing Facebook stock. For now, it’s not a big concern.
Lawrence Meyers is the CEO of PDL Capital, a specialty lender focusing on consumer finance and is the Manager of The Liberty Portfolio at www.thelibertyportfolio.com. He does not own any stock mentioned. He has 23 years’ experience in the stock market, and has written more than 2,000 articles on investing. Lawrence Meyers can be reached at TheLibertyPortfolio@gmail.com.