Once again, social media giant Facebook (FB) has found itself embroiled in controversy. This time, the negative sentiment surrounding the company is related to its inaction when hate speech was used on the platform. Now, as part of the “Stop Hate for Profit” campaign, hundreds of companies have hopped on the boycott bandwagon and pulled their advertising from the platform.
While this turn of events is certainly concerning, how much of an impact will the boycott actually have on the top-line? Five-star analyst Colin Sebastian, of Baird, recently participated in a virtual presentation from Pathmatics, a marketing platform that provides insights related to the digital ad performance of brands and industries, in order to get a sense of the damage. Even though he acknowledges that the data is most likely an indicator and not a “pin-point estimate,” the analyst argues that so far, the effects are relatively in line with expectations.
Expounding on this, Sebastian stated, “While there was a clear drop in spending from some major brand advertisers, we view the update as suggesting the impact from the boycott on the overall Facebook platform will likely be modest, although it is still unclear if more advertisers will join the boycott and/or if it will extend past July. We have noted that Facebook has a long tail of millions of advertisers, and well-known brand advertisers represent a small slide of platform spend.”
Digging a bit deeper into the data itself, Pathmatics reported that in Q2, the leading 500 advertisers trimmed ad spending on Facebook by approximately $80 million from July 1–17, compared to the same period last year.
If this is representative of the boycott as a whole, and the trend continues for the whole month, it would result in a $200 million hit. However, this would account for only 1% of quarterly revenues. Sebastian added, “Separately, Pathmatics data shows a slight uptick in FB/INST pricing (CPMs) in Q2, consistent with our prior field checks.”
Who exactly is part of the boycott? Sebastian tells investors that brands are cutting ad spend the most, although Target has also reduced its spending considerably. According to Pathmatics, 90 of the top 500 advertisers slashed their Facebook ad budgets. The names with the largest drops in spend are Hershey, Mondelez, Diageo, Clorox, Hulu and Samsung.
Additionally, while Facebook has been trying to mitigate the damage, its competitors have been counting the boycott as a win. “... YouTube and Twitter, and to a lesser extent Amazon, are benefiting in July from the boycott. For example, Hulu, Geico and Samsung are allocating more to YouTube; Target, Best Buy and Geico are each increasing spend by 2x or more on Twitter in July,” Sebastian explained.
That said, Sebastian is “constructive on shares as the digital ad market continues a gradual recovery.” To this end, he keeps an Outperform rating and $300 price target on the stock. Shares could appreciate by 29%, should the analyst’s thesis play out in the coming months. (To watch Sebastian’s track record, click here)
Judging by the consensus breakdown, other analysts also like what they’re seeing. 29 Buys and 5 Holds add up to a Strong Buy consensus rating. Based on the $258.78 average price target, the upside potential comes in at 11%. (See Facebook stock-price forecast on TipRanks)
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