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Facebook Stock Slides After Trove of Whistleblower Papers Released Ahead of Q3 Earnings

A trove of papers obtained by a Facebook whistleblower highlighting everything from concern over the declining interest of teen users to its role in the January Capitol riots were published just hours ahead of the group's third quarter earnings.

Facebook Inc.  (FB) - Get Facebook, Inc. Class A Report shares slipped lower Monday following the release of a trove of papers obtained by a company whistleblower that highlighted everything from concern over the declining interest of teen users on the social media platform to its role in the January Capitol riots heading into the group's third quarter earnings report after the close of trading.

The documents, most of which formed part of whistleblower Frances Haugen's testimony to Congress earlier this month and have been sent to the U.S. Securities and Exchange Commission, were given to series of media outlets for publication Monday. They include employee comments on internal discussion groups, research reports into the declining hours of teen users and repeated failures to police content shared on the platform outside of the United States and Canada, where more than 90% of Facebook's actively monthly users are based.  

The revelations -- some of which were detailed in a a series of Wall Street Journal reports earlier this month -- come just hours ahead of the social media group's third quarter earnings, where investors are expecting to see a big jump in advertising revenues but a cautious near-term outlook thanks to privacy changes on within Apple's iOS and a pullback in marketing spending linked to global supply chain disruptions.

"Facebook shares have been under pressure following a series of reports in the WSJ and on 60 minutes related to the company’s handling of potentially harmful content and features, particularly around its younger users, although brands’ spend allocation on the platform has likely not been impacted thus far given the lead time for Q4 budgets," said Canaccord Genuity analyst Maria Ripp. "We expect management will address the topic on the earnings call and point to sentiment around last summer’s advertiser boycott as a reference, when an initial ~14% stock decline in late June was followed by a ~50% rally over the following two months as the boycott did not have a material impact on the company’s results."  

Facebook shares were marked 1% lower in early Monday to change hands at $322.50 each. That would mark a 16% decline from the stock's September 1 all-time high of $384.33.

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Haugen, a former product manager who revealed herself as the whistleblower behind a series of documents leaked to the Journal that exposed its role in contributing to a toxic online environment for teen girls, told CBS's '60 Minutes' that Facebook applies different rules to high-profile accounts and that the platform played a role in the January 6 attack on the Capitol Building.

“There were conflicts of interest between what was good for the public and what was good for Facebook,” she said. “Facebook over and over again chose to optimize for its own interests like making more money.”

Facebook denied the allegations, stating that "to suggest we encourage bad content and do nothing is just not true ... We continue to make significant improvements to tackle the spread of misinformation and harmful content," said Facebook spokesperson Lena Pietsch. 

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Late last week, Snap Inc.  (SNAP) - Get Snap, Inc. Class A Report, which makes the Snapchat messaging app, also said the new privacy changes in Apple's operating system made it more difficult to track and target users with specific ads, "making it more difficult for our advertising partners to measure and manage their ad campaigns for iOS."

Snap also slashed its near-terms sales forecasts, with chief business officer Jeremi Gorman also told investors that "advertising partners across a wide variety of industries and geographies that they are facing headwinds in their business related to disruptions in global supply chains as well as labor shortages and increasing costs', and were reducing marketing spend as a result.