Please ensure Javascript is enabled for purposes of website accessibility

Why Facebook Stock Just Dropped 6.5%

By Rich Smith – Jun 26, 2020 at 1:42PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Verizon joins the Facebook advertising boycott.

What happened

Facebook (META 2.16%) stock took a hit in Friday trading, falling 6.5% through 12:10 p.m. EDT, in the wake of an announcement from Verizon (VZ 3.13%) last night that it is "pausing" purchase of online ads from Facebook and its wholly owned Instagram subsidiary. 

So what

On Thursday, the Anti-Defamation League published an open letter criticizing Verizon for the presence of one of its ads found on Facebook "next to a video from the conspiracy group QAnon drawing on hateful and antisemitic rhetoric."

A soman looking shocked as she reads something on a smartphone

Image source: Getty Images.

Just hours later, after close of trading on the Nasdaq, Verizon announced that it is pulling its ads until Facebook "can create an acceptable solution that makes us comfortable" and ensure that Verizon's ads won't appear on the same page alongside posts that Verizon customers might find objectionable.

Now what

How big of a deal is this for Facebook? Advertising analytics company Pathmatics estimates that Verizon spends about $1.9 million or so, combined, on Facebook and Instagram ads monthly -- call it $23 million a year. That's kind of a drop in the bucket of this blue chip tech stock's $73.4 billion annual revenue stream, but it's not nothing.

Still, the real worry will be if Verizon's high-profile pause causes even more advertisers to boycott Facebook, such that the revenue losses snowball. There's a limit to how far this can go, as companies that drop advertising will necessarily lose exposure relative to companies that continue to buy ads on Facebook.

In the end, I suspect this is going to be a kind of tempest in a teapot that won't damage Facebook's business in the long run -- but I have to admit that the headlines look kind of bad right now, and I can hardly blame Facebook shareholders for feeling nervous today.

Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool's board of directors. Rich Smith has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Facebook. The Motley Fool recommends Verizon Communications. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Meta Platforms, Inc. Stock Quote
Meta Platforms, Inc.
META
$138.61 (2.16%) $2.93
Verizon Communications Inc. Stock Quote
Verizon Communications Inc.
VZ
$39.16 (3.13%) $1.19

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
326%
 
S&P 500 Returns
102%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 10/03/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.