The Pain for Facebook Stock Is Just Beginning

The lack of trust in FB and its alienation of key groups will lead to further declines in Facebook stock

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The lack of trust toward Facebook (NASDAQ:FB) CEO and Chairman Mark Zuckerberg, combined with the increasing animus liberals bear toward Facebook, will likely ensure that FB stock will be lower in six months than it is now.

Mistrust Will Hurt FB Stock

In an article published on Oct. 25, I noted that Facebook had made multiple, alleged misstatements. I quoted Facebook’s VP, Business and Marketing Partnerships, David Fischer, as saying in 2016 that, “We know we can’t have true partnerships with our clients unless we are upfront and honest with them.”  I agreed, writing that FB had “jeopardized its relationships with … advertisers” by allegedly downplaying the degree to which it had exaggerated the amount of time spent watching videos on the website.

Now more allegations of duplicity against Facebook, by a largely reputable, well-respected source, have surfaced. Specifically, on Nov. 14 The New York Times reported that in early 2017, Facebook COO Sheryl Sandberg, Zuckerberg’s No. 2, decided not to disclose Russia’s involvement with political advocacy on Facebook. According to the newspaper, FB kept a lid on the information “throughout the spring and summer of 2017.” When the company finally decided to disclose some information about the Russians’ activities, Sandberg ordered the disclosure to be “less specific,” The Times stated.

This second major episode of dishonesty by Facebook will further undermine the ability of advertisers, regulators and consumers to trust the company. As a result, advertisers will be less likely to rely on the data they receive from Facebook, and they will be more likely to use other digital advertising options, hurting FB’s results and Facebook stock.

Consumers will be less likely to share financial and highly personal information with Facebook, undermining the company’s attempts at direct sales and hurting its engagement numbers. Finally, government regulators will be less likely to trust the assurances they receive from FB, increasing the likelihood of governments using onerous regulations to rein in the company.

Additionally, The Times reported that a lobbying firm hired by FB wrote “dozens of articles blasting Google and Apple (NASDAQ:AAPL) for unsavory business practices.” The firm also sought to link opponents of Facebook to billionaire liberal activist George Soros, The Times stated. It seems that FB was trying to link its opponents to Soros in an effort to convince conservative activists and Republican lawmakers to side with Facebook.

These tactics by Facebook will make other companies reluctant to work with the social networking giant, as they will fear that if FB doesn’t like something they do, it could smear them. For example, PayPal (NASDAQ:PYPL) could avoid partnering with FB to enable money transfers over the Facebook website and/or WhatsApp.

Alienating Liberals

In a March 2018 article written shortly after the Cambridge Analytica scandal broke, I warned that liberals could be upset at Facebook for helping Donald Trump to become President. The Times story increases the likelihood of that happening since it more clearly exposes the significant efforts by Russians to promote Trump on Facebook.

Facebook’s alleged efforts to link its opponents to Soros, a liberal activist, could further upset liberals. As a result, liberals may curtail their use of Facebook. This trend could be exploited by existing competitors, especially Snap’s (NYSE:SNAP) Snapchat and Twitter (NYSE:TWTR). And companies like Google, Alibaba (NYSE:BABA) or even Amazon (NASDAQ:AMZN) could  be emboldened by the trend to launch their own competitors to Facebook. Of course, market share losses could negatively impact Facebook and FB stock significantly.

Investors’ Loss of Confidence

There are many signs that the Street in general and investors in particular are losing confidence in the leadership of Zuckerberg and Sandberg, and consequently in Facebook stock. For example, two institutions that own Facebook stock — Arjuna Capital and Trillium Asset Management — recently called on Zuckerberg to relinquish the chairman role. And Michael Robinson of Money Map Press, described by Yahoo Finance as a “veteran tech analyst” recently told the platform that FB is “a deeply troubled stock,” adding that “I don’t know where the bottom is and I am not sure anybody really does.” And of course, FB stock has plunged over 35% from its July highs.

The Bottom Line on Facebook Stock

Under the leadership of Zuckerberg and Sandberg, Facebook has probably lost the trust of many advertisers and regulators. It has also likely alienated many liberal users and investors. As a result, FB’s business is facing many threats and will probably deteriorate further, while FB stock will in all likelihood fall much further from its current levels.

As of this writing, the author did not own shares of any of the companies named.

 


Article printed from InvestorPlace Media, https://investorplace.com/2018/11/the-pain-for-facebook-stock-is-just-beginning/.

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