Facebook, Inc. Doing the Right Thing Isn’t a Death Sentence for FB Stock

Advertisement

FB stock - Facebook, Inc. Doing the Right Thing Isn’t a Death Sentence for FB Stock

Source: SilverIsdead Via Flickr

Facebook Inc (NASDAQ:FB) announced Jan. 12 that it was making changes to its news feed that are intended to provide a better experience for its users, but could ultimately end up hurting FB stock.

There’s already been plenty of analysis regarding the changes, so I won’t spend a lot of time on the subject. Suffice it to say, many think this is a bad move for the social media giant because it will reduce revenues.

I don’t think so. Here’s why…

Millennials Will Like the Changes

The idea of millennials abandoning Facebook for other social media platforms isn’t a new conversation. Almost three years ago, the Washington Post published an article entitled “Why teens are leaving Facebook: It’s ‘meaningless’” that explored how teenagers were moving over to Snapchat, Instagram or even Twitter, President Trump’s favorite method of communication.

Facebook long ago became the social media site for old people, in large part, because adults over the age of 35 are more readily accepting of advertising than younger internet users and less likely to experiment with other social media platforms.

Young people just say, “[Bleep] that,” and go elsewhere.

The bad news for Facebook is that young people aged 18-34, which accounted for 36% of its users in 2016, are leaving for greener pastures.

The good news is that most of them are likely going to Instagram, the company’s hipper stablemate, where 90% of the users are younger than 35 — many of them female and responsible for the majority of the purchasing decisions in the average household.

So, imagine you’re Mark Zuckerberg. You know that your younger demographic continues to migrate over to Instagram and WhatsApp, where the engagement rates marketers generate are considerably higher, leading to higher ad revenue.

You also know that the users that remain at the legacy Facebook platform would prefer a user experience where interacting with friends and family is ultimately far more important than receiving news and commercial content — whether fake or real.

The point is, Facebook sees the changes reducing the amount of time users spend on its site, but likely increasing the user experience, which could bring some of the defectors back into the fold.

Think about it.

Wouldn’t you rather offer advertisers two phenomenal sites that users like, as opposed to one-and-a-quarter sites? 

I would. 

Forget Twitter

InvestorPlace’s Ian Bezek recently suggested that it would be a good idea if Facebook acquired Twitter Inc (NYSE:TWTR), because it would allow the company to provide differentiated user experiences for each of its demographic sub-groups.

“Facebook can win big in the long run by delivering a separate social media platform for each kind of user,” wrote Bezek on Jan. 16. “Twitter for news. Facebook for friends and family. Instagram for pictures, food, travel, experiences, and so on.”

I do not doubt that Facebook could fix what ails Twitter. However, why should it pay $30 billion [Bezek feels $40/share might be the price Twitter is acquired at] for what’s fundamentally a social media news aggregator?

As speculative plays go, I get why analysts are warming to Twitter — consider its social media site to be like department store real estate — but Zuckerberg could build his own Twitter at half the price.

Bottom Line on FB Stock

In late October, I argued that Facebook’s news feed experiment would boost FB stock.

It appears its Jan. 12 announcement confirms that the experiment found users want a dedicated space for keeping up with friends and family.

I’m a glass-half-full type of person when it comes to Facebook. I see its latest move — giving the customer what he or she wants — as another reason why it has a market cap of $516 billion, or almost 30 times Twitter’s.

The changes, in my opinion, aren’t anywhere close to being a death sentence for FB stock.

As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.

Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.


Article printed from InvestorPlace Media, https://investorplace.com/2018/01/facebook-right-thing-death-wish-fb-stock/.

©2024 InvestorPlace Media, LLC