Facebook loses billions of dollars, and the exodus of advertisers does not stop.
UNITED STATES (Bloomberg) – A significant number of companies are increasing the pressure on other brands to follow suit and abandon Mark Zuckerberg’s social network. Add to this, the economic downturn of the pandemic and the risks to Facebook are compounded.
A growing list of advertisers on Facebook Inc. plans to suspend spending on social networks, undermining the company’s sales prospects and putting even more pressure on its stock price.
Starbucks Corp., Levi Strauss & Co., PepsiCo Inc., and Diageo Plc are among the companies that have recently announced a cut in advertising spending, part of an exodus aimed at pressuring Facebook and other companies in the industry to eliminate comments that glorify violence, divide and misinform the public, and promote racism and discrimination.
No single company can significantly affect growth on Facebook, which generated US$17.7 billion in revenue in the last quarter. But more companies are increasing the pressure on other brands to follow suit, and if this is coupled with an economic downturn fuelled by a pandemic, the risks to Facebook are compounded.
“Given the noise this generates, it will have a significant impact on Facebook’s business,” wrote Wedbush Securities analyst Bradley Gastwirth in an analysis commentary. “Facebook must address this issue quickly and effectively to prevent advertising bans from spiraling out of control”.
As more brands plan to join the boycott or curb advertising spending, Facebook’s actions remain under pressure. The stock fell 8.3% on Friday after Unilever, one of the world’s leading advertisers said it would suspend spending on Facebook properties this year, erasing $56 billion from the company’s market value and eliminating more than $7 billion from the net worth of CEO Mark Zuckerberg. The stock closed at $216.08 on Friday after hitting a record high of $242.24 on Tuesday.
Facebook was already preparing for weak performance in the second quarter, which ends this week. Chief Financial Officer Dave Wehner warned in April of a possible “even more severe contraction in the advertising industry.”
Facebook faces a massive abandonment of advertisers that would hit its finances and profits in the long term. The number of coronavirus cases increased in subsequent months, leading many parts of the country to slow down or reverse reopening measures and giving advertisers additional justification to curb marketing spending.
Facebook will record 1% revenue growth in the June period, followed by a 7% increase in the third quarter, according to current analyst projections, by far the smallest quarterly growth increase since the company went public.
Starbucks said Sunday it would suspend spending on all social networking platforms while it holds internal discussions with media partners and civil rights groups “to stop the spread of hate speech”.
While some companies are targeting social networks in general, including Twitter Inc., many are pointing to Facebook specifically. Zuckerberg has been more reluctant to place limits on the discourse, particularly the controversial postings by U.S. President Donald Trump, saying he does not want Facebook to be an arbiter of what is true.
That prompted a consortium of civil rights and other advocacy groups, including the Color of Change and the Anti-Defamation League, to urge advertisers to stop spending on Facebook-owned platforms in July to protest the company’s policies.
Zuckerberg responded to mounting criticism Friday, saying Facebook would tag all poll-related posts with a link urging users to check out its new election information center.