Politics, Not Earnings, Weigh on Facebook’s Future Prospects

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To say that Facebook (NASDAQ:FB) has had an eventful year would be quite the understatement. From where I sit, the social media giant is on the cusp of delivering record results for its fourth-quarter earnings report due to strong digital advertising trends. However, that may not be the top agenda for Facebook stock, at least for those who are considering a long-term position.

As Free Cash Flow Continues Rolling, So Will Facebook Stock
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When Facebook was in its early stages, it was viewed as a more mature or professional version of MySpace. In other words, it was exclusively a social network. However, the company evolved into a comprehensive technology firm, diving into relevant sectors like virtual reality and even cryptocurrencies.

Of course, its core social media business grew into a multi-billion-user empire, which has become both an asset and liability.

Benefit for Facebook Stock

On the surface, Facebook’s massive influence is a huge benefit to FB stock.

Despite the law of large numbers working against the company’s monthly active user growth trajectory, the gains are truly impressive. As of Q3 2020, Facebook had 2.74 billion MAUs, or roughly 35% of the global population.

But it’s this influence which has also been a thorn on the side of Facebook stock. As you’ll recall, Facebook suffered an ignominious PR witch hunt with Cambridge Analytica, a research firm which misused the data goldmine that is FB’s vast network. Accusations quickly came to the social media giant’s doorstep that it helped then-candidate Donald Trump win the White House in the 2016 election.

It’s this context which we should probably view Facebook’s stance on various political issues. Several months ago, management stated that it will block new political ads in October. Later, the company imposed new protocols to help prevent election misinformation.

Most recently, Facebook banned Trump indefinitely, though a new oversight board is reviewing the matter. Still, many angry users blasted management for a gross overreach. Should stakeholders be concerned about the heat?

Too Much Pandering Could Hurt

There’s a political aphorism that’s often attributed to Winston Churchill: “Any man who is under 30, and is not a liberal, has no heart; and any man who is over 30, and is not a conservative, has no brains.”

Essentially, as we grow older, we tend to become more conservative. And I think it’s a reasonable assumption. More responsibilities are tacked onto our lives, which makes us less idealistic and more realistic. Indeed, The Guardian reports that the “direct psychological processes of ageing” tends to “make people more resistant to change.”

Again, this makes perfect sense. Unfortunately, this dynamic implies some headwinds over the horizon for Facebook stock, irrespective of the Q4 results.

Although the Democrats are celebrating their electoral victories, it’s important to remember that Trump garnered 74.2 million votes, the most by an incumbent president. More significantly, he did so during a once-in-a-century pandemic which he caught the ire from both the public and the mainstream media. That he was able to endure the most aggressive attacks seen – some of it deserved, some of it not – is a testament to the resilience and reach of the “MAGA” movement.

As it relates to Facebook stock, the underlying company can’t afford to tick off this massive user base. It’s not so much like Twitter (NYSE:TWTR), which caters more to celebrities and influencers. Rather, Facebook is the everyman platform. I’m sorry but losing over 70 million American users – among the richest user bases in the world – is just not good for business.

Further, the brand has strong representation among the 35-and-older crowd. It’s one of the factors that make Facebook unique among social media competitors. But that advantage can slip badly if FB pursues policies that appear disproportionately punitive to conservative voices.

A Tough Call No Matter What

On the other hand, Facebook can’t cozy up to conservatives because that would anger the already skeptical liberal/progressive user base. As well, I should point out that President Joe Biden won both the Electoral College and the popular vote.

Basically, this puts Facebook stock in a no-win situation when it comes to the current political and social climate. About the only thing that will be a true positive catalyst on this front is if Democrat leadership extends an olive branch to Trump and quashes the impeachment proceedings. This way, we can bring substantive healing to our country and move forward from this awful moment.

Obviously, this is wishful thinking. Several politicians across the aisle want to settle scores. And by doing so, frustrated conservatives will view big tech and big media as part of the leftist machinery. It’s a tough, tough situation no matter where you look, which is why I’m hesitant on Facebook stock right now.

On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. Tweet him at @EnomotoMedia.


Article printed from InvestorPlace Media, https://investorplace.com/2021/01/facebook-stock-politics-weigh-heavily/.

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