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Why Facebook Stock Bounced Back Today

By Rich Smith – Oct 18, 2021 at 12:38PM

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What is a metaverse? No less than the future of Facebook.

What happened

On a mixed day for the stock market -- the Dow is down a small fraction of a percent, while the Nasdaq is up a slightly larger fraction of a percent -- Facebook (META 3.01%) stock is shining today, with its shares rising 2.2% as of 11:15 a.m. EDT.

It seems that the good news is finally beginning to outweigh the bad.

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Image source: Getty Images.

So what

You all know the story on Facebook of late. For much of this month, the stock's been lagging as first The Wall Street Journal, then The New York Times, and finally the U.S. Congress itself have been critical of its business practices. Well, today the story got a bit worse, when the Journal released its latest "Facebook Files" report, detailing the inability of Facebook's artificial intelligence algorithms to correctly "identify first-person shooting videos, racist rants and even ... the difference between cockfighting and car crashes."  

According to the report, only "a low-single-digit percent" of instances of hate speech posted on the social network get correctly tagged and taken down by Facebook. And while you might think that the company would try to fix this problem by having human reviewers step in when AI fails, the Journal says that "Facebook two years ago cut the time human reviewers focused on hate-speech complaints from users."

Conclusion: According to Facebook's own internal reports, "the company is nowhere close to being able to reliably screen [content that] Facebook deems offensive or dangerous."

Now what

That's the bad news -- and it's pretty bad. But here's the good news:

On Oct. 25, Facebook gets a chance to change the story, so to speak, when it reports its third-quarter 2021 earnings news -- drowning out negative PR is a torrent of terrific numbers. According to data from S&P Global Market Intelligence, analysts are forecasting that Facebook will report tremendous 37% sales growth for the quarter and earnings up 17% -- up 32% pro forma -- as a recovering economy leads to a surge in ad-buying by Facebook's corporate customers.  

And beyond next week's report, analysts are forecasting continued strong earnings growth at Facebook -- 19% annually over the next five years. In support of that buy thesis, Reuters just reported that Facebook plans to hire 10,000 new workers in Europe alone as it evolves its business from a mere social network into the world's first true metaverse -- "an online world where people can use different devices to move and communicate in a virtual environment [via] VR, AR, PC, mobile devices and game consoles."

Despite all the bad PR, the future still looks bright for Facebook, and investors are noticing that 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 has a disclosure policy.

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