Stock Market Comment: Advertisers boycott Facebook

• New social campaign triggers Facebook boycott

• Advertisers halt spending on social media platform

• Microsoft, Starbucks and Pfizer join boycott

• Impact on financial revenues may be limited

• Share price almost fully recovered from last week's drop

Number of companies have decided to suspend ad spending on Facebook recently, causing the company's share price to drop. Departure of advertisers came as a consequence of a new social campaign targeted at hate speech and misinformation. In this short commentary we take a quick look at the issue and its impact on Facebook.

#StopHateforProfit campaign

Civil rights groups in the United States launched #StopHateforProfit social campaign last month. The goal of the campaign is to raise public awareness of social media companies profiting from hate speech and misinformation. Facebook is used as an example as it failed to address hate speech and fake news from some politicians. For instance, when Twitter labelled some of Trump's tweets misleading or promoting violence, Facebook stayed idle on those same posts repeated on its social media platform. Activists called for a boycott of Facebook and the call has been heard.

Boycott and departure of advertisers

This Facebook boycott is different from the previous ones. This time companies are boycotting Facebook by halting ad spending on its website. As Facebook generates almost all of its revenue from ad dollars this is a direct hit to company results. List of companies grew and share price began to fall making an over 10% decline last week. Among companies that already announced temporary suspension to ad spending on Facebook one can find Microsoft, Starbucks, Unliver, Verizon or Volkswagen.

Facebook (FB.US) share price made a steep drop last week as boycott gathered pace. However, a strong upward move can be seen with this price almost fully recovering from a slump. Price trades near the midpoint of the upward channel currently. Source: xStation5

Impact on financial results

However, will revenue drop be significant? This is a very important question for Facebook investors. It turns out that the financial impact of the boycott may not be too significant. Ad revenue stream is very diverse as more than 8 million companies advertise on Facebook. While some of the companies that announced joining a boycott can be found among top25 advertisers (Microsoft, Pfizer and Starbucks), one should keep in mind that top100 advertisers combined accounted for only 6% of Facebook's total ad revenue in 2019! Covid-19 pandemic is likely to affect ad spending as companies seek savings so Facebook may see a revenue hit, but the sole impact of the boycott is unlikely to be significant.

Aftermath

This is clearly a PR issue for Facebook but the company said that it will not change its policies under threat of losing portion revenue. On one hand, such an approach will damage Facebook image. On the other, Facebook is the biggest social media platform in the world and ads placed there are viewed by millions each day. There is high chance that most of the companies will be back on Facebook with their ads as soon as the #StopHateforProfit campaign starts to lose publicity.

Taking a look at Facebook (FB.US) at a higher frame, one can see that the sell-off was short-lived and was halted near the 38.2% retracement of the post-pandemic recovery rally. A strong resistance zone ranges in the all-time high area ($240-245) and breaking higher would put the price in uncharted waters.