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 (NASDAQ:FB) shares have dipped in recent days, analysts aren't too worried about the company's long-term prospects.
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 (NYSE:PG) 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.