Please ensure Javascript is enabled for purposes of website accessibility

Analysts Aren't Worried About the Facebook Ad Boycott

By Evan Niu, CFA – Jun 29, 2020 at 2:45PM

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

Until scandals impact user growth, marketers will always come back.

The social media ad boycott continues to gain momentum, with more major companies including coffee giant Starbucks and alcoholic beverage specialist Diageo joining the boycott over the weekend. Other prominent brands that have paused advertising on social media include Coca-Cola, Levi Strauss, Unilever, and Verizon, among others. The movement is a protest against hate speech, which frequently thrives on social media platforms that struggle to reconcile free speech with policies against harassment or abuse.

While Facebook (META -1.69%) shares have dipped in recent days, analysts aren't too worried about the company's long-term prospects.

Campus poster that says "Fail Harder" and "Think Wrong"

Posters at Facebook offices that show the company's philosophy. Image source: Facebook.

Advertisers always come back

The overall impact to ad revenue is expected to be relatively minor and short-lived, most analysts believe. MKM Partners analyst Rohit Kulkarni expects that the impact to Facebook's total revenue will be 5% or less, noting that the advertiser base is quite diversified so it doesn't face much customer concentration risk. Facebook has 8 million total advertisers, COO Sheryl Sandberg noted on the last earnings call, up from 7 million in early 2019.

Consumer staples juggernaut Procter & Gamble (PG -0.46%) is the largest advertiser in the world, but represents just 0.5% of Facebook's sales, according to Kulkarni. P&G has not halted any advertising campaigns on social media quite yet but has signaled that it is considering such a move. The company had previously pulled its ads off Alphabet's YouTube in 2017 over concerns around brand safety but resumed a year later after working with YouTube to address the issues.

J.P. Morgan analyst Doug Anmuth is similarly unfazed by the boycott campaign and does "not expect significant risk to numbers." In fact, a pullback in ads could result in lower prices for direct-response campaigns, which would increase demand among advertisers. Facebook has been plagued by a seemingly never-ending string of crises over the past few years, with Anmuth citing the Cambridge Analytica scandal as a particularly prominent one, yet marketers have always "returned to the platform."

Raymond James analyst Aaron Kessler also expects the duration of the campaign to "be short-lived," while expressing confidence that Facebook's recent policy tweaks "will help alleviate advertiser concerns." Facebook CEO Mark Zuckerberg last week announced minor changes to the company's policies around hateful content, but critics argue that the move is still insufficient to meaningfully curb hate speech.

Facebook is essentially taking a page out of Twitter's playbook, adding warning labels to potentially offensive content while leaving posts up that it considers to be newsworthy. Twitter has garnered its own fair share of criticisms, and is also being impacted by the boycott.

One explanation for why advertisers always come back is that none of the controversies have dented Facebook's user growth. The user base continues to march higher every quarter without fail, with monthly active users (MAUs) on the core Facebook platform hitting a record 2.6 billion in the first quarter.

"We know we have more work to do," a Facebook spokesperson said.

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. Evan Niu, CFA owns shares of Facebook and Starbucks. The Motley Fool owns shares of and recommends Facebook, Starbucks, and Twitter. The Motley Fool recommends Diageo and 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
$140.41 (-1.69%) $-2.41
The Procter & Gamble Company Stock Quote
The Procter & Gamble Company
PG
$135.58 (-0.46%) $0.63

*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
329%
 
S&P 500 Returns
106%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 09/24/2022.

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.