Advertisers will eventually return to Facebook -- but brands aren't in a rush to spend money in its platforms, according to one analyst.
The Facebook ad boycott could last through the November U.S. presidential election for certain brands, Needham's Laura Martin wrote in a note on Friday. And implications of the boycott could be worse than current consensus estimates suggest, wrote Martin.
Facebook shares were down 1.2% to $234.84 on Thursday afternoon.
Brands are "happy to weaken Facebook's iron grip on their ad budgets," she wrote, lowering her sales and earnings estimates for 2020 and 2021. Martin expects 2020 revenue of $74.589 billion, compared to a prior estimate of $78.812 billion, and earnings of $6.80 per share versus $7.47 prior.
Facebook's and Instagram's brand value is "under attack" via the boycott, placing 15% of Facebook's enterprise value at rise according to Martin's analysis. Furthermore, advertising by small to medium-sized businesses is falling fast owing to COVID-19, which could wind up shuttering one million small businesses according to a recent report by Moody's.
COVID-19 lockdowns have also diminished the need to reach consumers on their mobile devices, which is a competitive advantage for Facebook and an additional incentive for advertisers to shy away from Facebook and Instagram in the coming months.
Needham's channel checks with advertisers suggest that certain brands will sit out Facebook activity through the November election, when political speech and advertising are likely to ramp up significantly. Facebook has a generally hands-off policy towards such content, declining to limit or fact-check political advertising that contains lies and allowing inflammatory content from President Trump and other public figures, except in limited circumstances.
Facebook CEO Mark Zuckerberg announced updates to some of its policies on hate speech and voting-related content, but it didn't appear to stem the spread of the boycott. Hundreds of brands have formally pledged to pull advertising at least through July.
Rebuilding brand trust is slow and costly, Martin added, and Facebook is also not slashing costs quickly enough to offset a dip in revenue. For 2021, Martin expects $85.707 billion in revenue and earnings of $8.66 per share, versus a prior estimate of $95.894 billion and EPS of $9.82.
Facebook shares are up 12% year to date.