Facebook Ad Boycott Grows, But Likely Won't Dent Q2 Revenue

Facebook's June quarter ad revenue will likely worsen compared to March, but not because of a growing advertiser boycott.
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In the wake of controversy over Facebook's ad policies, some advertisers are putting their money where their mouth is. 

Companies including REI, The North Face, Magnolia Pictures and Upwork have said they won't buy ads on Facebook at least through July as part of a boycott dubbed #StopHateforProfit. Last week, civil rights groups called on major advertisers to pause Facebook ad campaigns in response to the social network's policies on racist and violent content. 

Facebook  (FB) - Get Report shares closed 3.39% lower on Wednesday at $234.02.

From a financial point of view, any impact from the boycott is likely "temporary in nature," said Scott Kessler, global sector lead in technology, media and communications at Third Bridge. 

"That doesn’t mean they won't end up being permanent," he added. "It does seem, at least initially, that it's a very small number of companies. But it is a significant action and gesture for some of them for sure." 

The impact of the boycott on Facebook's second quarter, which ends June 30, will likely be quite small. But it could be a historically bad quarter for Facebook's ad revenue regardless. Right now, analysts are expecting $16.74 billion in ad revenue for the June quarter, worse than the prior quarter and roughly flat compared to a year ago. And no one knows for sure just how long it will take for ad revenues to rebound to pre-COVID levels. 

This quarter has also been marked by controversy. 

The advertiser boycott grew, in part, out of Facebook's decision not to fact check or remove incendiary posts by President Trump, one of which referred to shooting protesters. It did, however, remove ads by Trump's reelection campaign that contained a hate symbol, citing a policy barring "organized hate."   

One factor that could limit the impact of a boycott to Facebook's top line is that a large chunk of its advertiser base is small to medium-sized businesses, Kessler added. 

"I think it's one of the reasons why Facebook pretty notably stepped up to support SMBs, and it's one of the reasons why they rolled out Facebook Shops when they did," he said. 

In late April, Facebook announced a $100 million grant program for small businesses impacted by COVID-19. It also recently launched Facebook Shops, a new ecommerce feature that allows businesses to more easily list products across Facebook and Instagram. 

Compared to other, smaller ad platforms, analysts expect the two largest digital ad players -- Alphabet  (GOOGL) - Get Report and Facebook -- to be relatively resilient in an extended economic downturn. In the meantime, Facebook appears to be putting its foot on the gas when it comes to diversifying its revenue. 

In addition to newer ecommerce initiatives like Facebook Shops, the company has been talking up Oculus sales and investments in video calling and other features. Because of advertising uncertainty, however, it pulled its full-year sales guidance.

Shares of Facebook are up 11% year to date.