It might take more than policy tweaks to halt a growing advertiser boycott of Facebook. But that doesn't necessarily mean the social media giant is in any significant trouble, analysts say.
Dozens of companies, including major advertisers such as Unilever (UL) - Get Unilever PLC Sponsored ADR Report, have said they will suspend running ads on Facebook at least through July in response to hate speech and misinformation on its platforms. Organizers of the campaign, called #StopHateforProfit, are aiming to take the boycott global; Procter & Gamble (PG) - Get Procter & Gamble Company Report, the world's largest advertiser by spending, is considering signing on. Starbucks (SBUX) - Get Starbucks Corporation Report and Coca-Cola (KO) - Get Coca-Cola Company Report also said they were pausing all social media advertising.
“We’re seeing a tremendous change in the speed and approach our customers and marketers in general have adopted over the last quarter when it comes to digital ad investments, pausing, or re-allocating dollars," said Julia Stead of Allocadia, a platform that helps marketers allocate budgets. "In the case of Facebook, this also leaves a bigger opportunity open for other ad platforms like Google and Twitter to take advantage of these available ad budget dollars.”
Facebook investors were spooked by the boycott, at least as far as Friday's trading activity was concerned. Facebook shares fell 8% after Unilever said it would halt social media ads through the end of this year; and a slew of policy changes announced by Facebook on Friday didn't seem to stem the boycott, with Starbucks and others making similar pledges over the weekend.
But in a note on Monday, MKM Partners analyst Rohit Kulkarni wrote that he's not overly worried, noting that the boycott represents a risk to only about 5% of Facebook's revenue since the company's advertiser base is so large, at over eight million paying advertisers, including many small businesses. Even Procter & Gamble likely accounts for less than 0.5% of Facebook's overall revenue, according to Kulkarni.
Similarly, in a note on Monday, JP Morgan analyst Doug Anmuth wrote that he doesn't expect a "major impact" to Facebook's results, though the boycott presents a near-term risk.
The boycott, which included about 100 major advertisers as of Monday, is likely to grow, according to Anmuth. Facebook is also likely to make additional policy changes beyond those announced Friday, which include taking down false information about voting and implementing a new labeling system for "newsworthy" posts from world leaders that would otherwise violate its policies.
Anmuth likened the current challenges to the Cambridge Analytica data sharing scandal, which also triggered advertiser pledges not to do business with Facebook, but which Facebook successfully navigated through business-wise.
"FB has endured advertiser crises before -- including Cambridge Analytica in March '18 -- and marketers returned to the platform," he wrote. In the meantime, marketers not participating in the boycott might take the opportunity to pick up lower-priced inventory, Anmuth said.
When the Cambridge Analytica scandal first broke, Facebook's stock hit the skids for about a two-week period; it then rallied until the company's second quarter earnings report, when it disclosed it would spend much more heavily on privacy and security measures as a result of what had happened.
Various companies pledged to pause spending on Facebook and a #DeleteFacebook campaign was promoted among users, but Facebook CEO Mark Zuckerberg told reporters in early April 2018 that the company wasn't seeing much revenue impact from those moves.
This time things could be different, with a greater number and larger size of advertisers participating, and companies such as Unilever pausing spending for a longer period of time.
But the risk is limited for now, according to Anmuth: Facebook's size and reach make it difficult for many advertisers to stay away for long, and the density of Facebook's auction system mean it can likely recover part of the revenue losses.
"We believe the current campaign would need to expand significantly to create a meaningful impact and many businesses simply cannot afford to lose FB’s scale & ROI, particularly as the economy re-opens," he wrote.
Facebook shares are up 7% year to date.