Facebook action: Wall Street sends clear message to social media company

The “Facebook Papers” are a wealth of internal Facebook documents based on disclosures made to the Securities and Exchange Commission and provided to Congress by whistleblower legal counsel Frances Haugen. The redacted versions were obtained by a consortium of 17 news agencies, including CNN.

Wall Street is clearly sending a message to Facebook: Investors are unhappy with the direction of the company. Stocks retreated from all-time highs. The stock fell 5% last Friday alone and is now more than 15% below the record price reached earlier this year.

This is just the latest in what seems like a never-ending saga of misfires and headlines for Facebook. Investors, lawmakers, advertisers and users are increasingly furious with Facebook, signaling that it may be time to change direction.

The Wall Street Journal previously published a series of articles based on tens of thousands of pages of internal Facebook documents leaked by Haugen. (The work of the consortium is based on many of the same documents.)

Facebook’s stock has lagged behind other FAANGs

The latest revelations still threaten to dampen investor enthusiasm for the social media giant. Facebook’s stock didn’t do as well as most other high-tech stocks.

Over the past two years, Facebook has actually fallen a bit behind the Nasdaq’s 83% gain. It is also far behind the performance of Apple and Alphabet.

Facebook shares are up nearly 75% since October 2019, compared to an increase of more than 140% for Apple (AAPL) and nearly 120% for the owner of Google Alphabet (GOOGL). In fact, Facebook’s actions have followed all of the FAANG (which also includes Amazon (AMZN) and Netflix (NFLX)) as good as Microsoft (MSFT) and You’re here (TSLA), in the last 24 months.

So maybe Facebook needs to really shake things up given that the stock has been the worst performing of the giant Nasdaq techs.

Facebook, which also owns Instagram, WhatsApp, Messenger and Oculus, will release its results after the closing bell on Monday and is widely expected to announce a new branding that will focus on the company’s growing weight in the so-called metaverse.

Big changes may be needed to silence Facebook critics

Will this be enough to distract investors from the revelations made in “The Facebook Papers”? It doesn’t seem likely, although third quarter profits are expected to rise 18% from a year ago.

So perhaps it is time for Zuckerberg to cede more control of the company to an outsider. Appointing COO Sheryl Sandberg as CEO may not be enough to satisfy skeptics. Given Sandberg’s long tenure with Facebook, critics might not view a promotion for her as a drastic enough change.

Facebook, don't change your name - change your CEO

But given that Zuckerberg owns shares in the company which hold 58% of the voting rights, any changes will likely have to be initiated by Zuckerberg. Pressure from other investors may not be enough.

“It would help if Zuckerberg gave up control, but I’m not sure how likely it is,” said Bryan Koslow, director of Clarus Group, an investment firm that owns Facebook through exchange-traded funds.

Koslow said the Instagram split and other steps to break Facebook could be a start.

“There is a bull’s-eye on Facebook’s back. They have these products and services that are considered addicting,” he added.

Still, a Facebook shareholder said that until users and advertisers start dropping out of Facebook in droves, little could change.

“Management’s response to the flow of information remains disappointing,” said Daniel Morgan, senior portfolio manager at Snyovus Trust, in an email. “However, the impact of negative press on advertiser spending has been limited in the past, given the broad reach of the platform.”

And Wall Street analysts follow advertisers’ money – not the endless sea of ​​unflattering headlines about the company.

In that sense, the consensus price target for Facebook stock is around $ 417 per share, almost 30% above current levels. According to Refinitiv, 48 analysts rated Facebook’s stock as a “buy,” while only seven “held it back” and only two recommend investors “sell.”

Facebook has already resisted tons of negative publicity. This time, in fact, it could be different.

But unless Facebook customers and users show that they really have had enough – in a way that has a much more significant impact on ad revenue, profits, and the share price – then Facebook can have little incentive to change your stripes.

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