Facebook (NASDAQ:FB) is once again in the throes of controversy – something the social media giant is all too familiar with – but as is often the case, FB stock is displaying fortitude as the company takes its lumps in the court of public opinion.
In fact, FB stock isn’t just weathering another public relations storm, it’s thriving. Facebook reclaimed all of the losses accrued on the back of an advertising boycott and then some. On Tuesday, July 7, FB stock flirted with all-time highs.
Here’s a brief explanation of Facebook’s latest PR imbroglio. Essentially, what’s happening is that many of the platform’s advertisers and users are growing tired of the company’s lack of policing of what they deem hate speech. The company says it has a policy against such posts, but that it can’t catch all unsavory comments before they go live.
In today’s environment, that’s not enough for some advertisers, as big names, including Coca-Cola (NYSE:KO), Ford (NYSE:F), PepsiCo (NASDAQ:PEP), and Starbucks (NASDAQ:SBUX), are participating in the July boycott of advertising on Facebook.
The idea here appears to be “hit Facebook where it hurts” – meaning lost ad revenue – until the company takes a more sensible approach to limiting or eliminating racially insensitive comments on the platform.
This Too Shall Pass
Facebook’s loss could be a gain for rivals such as Pinterest (NYSE:PINS) and Snap (NYSE:SNAP), as advertisers shift dollars elsewhere. However, CEO Mark Zuckerberg believes the July boycott will be temporary and that the advertisers that left the social media platform this month will eventually return.
Zuckerberg is one of the most criticized CEOs in Silicon Valley and a lot of that has to do with public perception of the Facebook founder. However, his interests are very much aligned with those of institutional and ordinary Facebook investors because he’s the largest individual shareholder.
Like Zuckerberg or not, the stock is up roughly 2.5x since early 2016. He’s taking steps to ensure the latest controversy facing his company blows over. On July 7, he met with officials from the National Association for the Advancement of Colored People, the Anti-Defamation League, and Color of Change to examine how the social media company can better fight discrimination and racism.
What comes of those meetings remains to be seen, but for investors, the important angle is that Zuckerberg is not taking his company’s dominant perch in online advertising for granted. Facebook and rival Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) combine to control about 55% of the global online advertising market. Competitors to those two are bit players for now, but Facebook should take those threats seriously and it appears Zuckerberg is doing just that.
Bottom Line
The aforementioned grievances advertisers and users have with Facebook are credible and the company needs to do more to allay those concerns, but that doesn’t mean investors should wait for Facebook to become the model corporate citizen because there are other catalysts for the stock.
In May, Facebook announced that’s working with partners like Shopify (NYSE:SHOP) to bolster its e-commerce footprint, a move that could monetize the recently launched Facebook Shops and Facebook Rooms platforms.
With 2.5 billion monthly active users, Facebook makes for an ideal online retail venue. While it may be late to the e-commerce party, the potential to leverage popular offerings, such as Instagram, Messenger, and WhatsApp, into shopping destinations, could prove appealing to advertisers, consumers, and investors alike.
Another potentially lucrative move by Facebook is the leveraging of Instagram as an emerging rival to TikTok. These days, TikTok videos are all the rage in China, where the parent company is based, and here in the U.S., but Instagram “Reels” could be a credible competitor.
Facebook started testing Reels in Brazil in late 2019 and in some large European markets earlier this year. Now, it’s forging into India, a country that recently banned a slew of Chinese internet apps, including TikTok.
Facebook is already a player in India with an almost 10% stake in Jio Platforms. Investors shouldn’t overlook the opportunity set for the company in that country because India has more internet and mobile phone users than the U.S. has citizens.
Todd Shriber has been an InvestorPlace contributor since 2014. As of this writing, he did not hold a position in any of the aforementioned securities.
