Facebook’s advertising exodus over hate speech poses risks to revenue
Stock tumbles more than 8% after Unilever, one of the world’s largest advertisers, halts spending on Facebook properties
San Francisco — A growing list of Facebook’s advertisers is set to halt spending on social media, undermining the company’s sales outlook and putting its stock price under further pressure.
Starbucks, Levi Strauss, PepsiCo and Diageo were among the most recent companies to say they’re curtailing ad spending, part of an exodus aimed at pushing Facebook and its peers to suppress posts that glorify violence, divide and disinform the public, and promote racism and discrimination.
No single company can significantly dent growth at Facebook, which generated $17.7bn in revenue last quarter alone. But a rising tally adds to pressure on other brands to follow suit, and when combined with a pandemic-fuelled economic slowdown, the threat to Facebook deepens.
“Given the amount of noise this is drawing, this will have significant affect to Facebook’s business,” Wedbush Securities analyst Bradley Gastwirth wrote in a research note. “Facebook needs to address this issue quickly and effectively to stop advertising exits from potentially spiralling out of control.”
As more brands publicise plans to join boycotts or otherwise rein in ad spending, Facebook shares remain under pressure. The stock tumbled 8.3% Friday after Unilever, one of the world’s largest advertisers, said it would halt spending on Facebook properties this year, eliminating $56bn in market value and shaving the net worth of CEO Mark Zuckerberg by more than $7bn. Shares closed at $216.08 Friday after reaching a record $242.24 the preceding Tuesday.
Facebook was already bracing for weakness in the second quarter, which ends this week. CFO Dave Wehner noted in an April earnings call the “potential for an even more severe advertising industry contraction”.
The number of coronavirus cases has surged in the intervening months, prompting many parts of the country to slow or rollback reopening efforts and giving advertisers added justification to rein in marketing spending. Facebook will eke out 1% revenue growth in the June period, followed by a 7% increase in the third quarter, according to analysts’ current projections, by far the smallest quarterly growth increases since the company went public.
Starbucks said on Sunday that it would pause spending on all social media platforms while it carries out talks internally, with media partners and civil rights groups “in the effort to stop the spread of hate speech”.
While some companies are targeting social media generally, including Twitter, many are singling out Facebook specifically. Zuckerberg has been more reticent to put limits on discourse, notably controversial posts by US President Donald Trump, saying that he does not want Facebook to be an arbiter of what’s true.
That has prompted a consortium of civil rights and other advocacy groups, including Color of Change and the Anti-Defamation League, to urge advertisers to stop spending on Facebook-owned platforms for July to protest the company’s policies.
Zuckerberg responded on Friday to the growing criticism, saying that Facebook would label all voting-related posts with a link encouraging users to look at its new voter information hub. The social network also expanded its definition of prohibited hate speech for advertising.
“We understand people want to put pressure on Facebook to do more,” Facebook vice-president Nick Clegg said Sunday on CNN’s Reliable Sources. “That’s why we made those additional announcements in Friday. That’s why we’ll continue to redouble our efforts, because, you know, we have a zero tolerance approach to hate speech.”
The Anti-Defamation League called the changes “small”.
The stampede of advertisers, combined with lobbying from civil rights groups, leaves Zuckerberg in a bind. He could take further steps to curtail harmful content, but that risks alienating free-speech advocates and supporters of Trump who have argued that Facebook is censoring political discourse and suppressing conservative voices.
He could also stand pat on a bet that this advertising pause will be short-lived, as have social media ad boycotts in the past. But this exodus as distinct, Bernstein Securities analyst Mark Shmulik wrote in a research note Saturday. There’s heightened pressure to publicly demonstrate that brands stand with civil rights groups, he said. “The current environment is very different,” Shmulik wrote. “It is very visible who is and isn’t participating in the boycott where brand silence [equals] being complicit.”
Will Zuckerberg budge? While major brands such as Unilever and Coca-Cola have garnered most of the headlines, the vast majority of Facebook’s 8-million advertisers are small businesses, many of which rely heavily on Facebook advertising for sales. Some in the ad industry do not believe that these businesses, particularly those in commerce and direct-to-consumer sales, can actually afford to halt spending.
“Pulling off for a whole month would really hurt their business,” Deutsche Bank analyst Lloyd Walmsley said earlier this week. “It’s a lot to ask for.”