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Facebook’s latest controversies won’t hurt its bottom line

·Technology Editor
·5 min read
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This article was first featured in Yahoo Finance Tech, a weekly newsletter highlighting our original content on the industry. Get it sent directly to your inbox every Wednesday by 4 p.m. ET. Subscribe

Facebook (FB), the world’s largest social network with nearly 3 billion daily active users, is once again awash in controversy. But that won’t deter it from continuing to gain users or generating revenue.

After a series of articles by The Wall Street Journal revealed Facebook was either unwilling or unable to address systemic issues related to everything from users' mental health to human trafficking, the social media giant has seen no major backlash from investors or advertisers.

And despite Sen. Marsha Blackburn (R-TN) and Sen. Richard Blumenthal (D-CT), who sit on the Senate Commerce Committee’s subcommittee on consumer protections, opening a probe into the report's allegations, Facebook is unlikely to suffer any consequences that hurt it where it counts: its pocketbook.

“I think that the impact of these stories on Facebook in the long run, would be minimal,” NYU Stern School of Business professor Arun Sundararajan told Yahoo Finance.

In fact, according to Sundararajan, investors may view the news, if not as positive, then as neutral to the company. That’s because the reporting shows that Facebook is attempting to address at least some of the issues raised in the articles, while simultaneously trying to limit the impact any changes have on its advertising revenue.

Facebook’s users aren’t going anywhere

Proof of Facebook’s resilience in the face of its multiple controversies was on full display Wednesday when the company’s stock fell more than 4%, its lowest point since July, on news that its advertisers were having more difficulty reaching potential customers thanks to Apple’s iOS privacy changes. That’s a far larger drop than at any point since the WSJ’s reporting went public.

More importantly though, users around the world are still joining the sprawling social network, while those who are already there are unlikely to leave. And as long as there are billions of users on board, the company will continue to power forward.

“Facebook will weather this storm as they have done in the past,” Niklas Myhr, Chapman University assistant professor of marketing, told Yahoo Finance.

“They have a lock-in effect. They have users that are quite addicted to their platforms, and they already have all of their friends there,” explained Myhr, who is known as The Social Media Professor. “Out of pure convenience, people stay where all of their friends are.”

In Q2 2021, Facebook reported having 2.7 billion daily active users, a 12% year-over-year increase from 2.5 billion users in Q2 2020. And while that increase was smaller than the 15% growth it saw from Q2 2019 to Q2 2020, it’s still proof that the company continues to attract new users around the world.

But that slowdown has Facebook worried. Which is why, to ensure its future growth, the company is building out a version of Instagram for kids under 13. The controversial idea is meant to build out that "lock-in effect" for younger users in the hope that they stick with Facebook’s services well into the future.

Those billions of engaged users are what keep advertisers coming back to Facebook's platforms, even in the face of major controversies. Even in instances where big-name advertisers push back against Facebook’s systemic problems, such as the Stop Hate for Profit boycott that saw companies like Pfizer, Ford, Hershey’s, and more than 230 others pull their ads from the platform over the spread of hate speech, the company prevails.

SUN VALLEY, IDAHO - JULY 08: CEO of Facebook Mark Zuckerberg walks to lunch following a session at the Allen & Company Sun Valley Conference on July 08, 2021 in Sun Valley, Idaho. After a year hiatus due to the COVID-19 pandemic, the world’s most wealthy and powerful businesspeople from the media, finance, and technology worlds will converge at the Sun Valley Resort for the exclusive week-long conference. (Photo by Kevin Dietsch/Getty Images)
Facebook CEO Mark Zuckerberg walks to lunch following a session at the Allen & Company Sun Valley Conference on July 08, 2021 in Sun Valley, Idaho.(Photo by Kevin Dietsch/Getty Images)

That’s because the vast majority of Facebook’s advertising revenue comes from smaller advertisers trying to reach specific audiences, not from massive firms.

And while the pandemic drove the advertising industry to slash marketing budgets, Facebook's bottom line continued to swell. From 2019 to 2020, the social media empire’s revenue grew by 22% to $85.9 billion from $70.7 billion. Considering the pandemic slammed advertising budgets, Facebook’s revenue was off just 5% from its 27% growth from 2018 to 2019.

Facebook isn’t immune to outside forces

Though reports like the WSJ’s series may not put a dent in Facebook’s user base or revenue, the company does face other external threats. Government regulators could prove to be a particularly dangerous thorn in the social network's side.

“I wouldn't rule out that the government combined with international pressure from the European Union... will gang up on Facebook and actually amass such a powerful counterforce that there will be things that need to be done in terms of breaking up or increasing competition or putting tighter reins on operations,” Myhr said.

Facebook is already staring down two inquiries in Europe, one by the European Union’s competition watchdog, the European Commission, and the other by Britain’s Competition and Markets Authority regarding the company’s use of its massive amount of data to build out its Facebook Marketplace. The inquiries will look at whether Facebook used the data it gleaned from advertisers to then compete against their own clients in the marketplace.

Here in the U.S., Facebook is fighting an antitrust suit filed by the Federal Trade Commission. The suit alleges that Facebook is running an illegal buy-or-bury scheme by which it buys up smaller companies that it deems an existential threat. Facebook has denied the allegations.

For now, Facebook is the world’s leading social media platform. And despite challenges from the likes of TikTok and Snapchat, it will remain in that position. And unless users begin fleeing in droves, advertisers will pay up to use the platform, investors will pile into the stock, and the company will continue to dominate for years to come.

Daniel Howley is tech editor at Yahoo Finance.

Got a tip? Email Daniel Howley at dhowley@yahoofinance.com over via encrypted mail at danielphowley@protonmail.com, and follow him on Twitter at @DanielHowley.

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