Anyone who thought Facebook just “wake up like this” only needs to read The Wall Street Journal’s Facebook Files series this week to understand that things just aren’t so flattering beneath the surface. But even the harsh light of critical media reports is not enough to scare investors.
The Journal’s investigation found that the social-media giant knows its platforms — which are now used by nearly half the world’s population — harm users, often something only the company fully understands. As the Journal reports, some of the evidence was particularly troubling: Facebook’s internal research showed that among teens who reported suicidal thoughts, 13% of British users and 6% of American users reported a desire to kill themselves. Turnt up. Yet investors seemed to gloss over the largely troubling revelation: Facebook stock had lost less than 1.5% of its value this week, at the close of Thursday’s market.
Say what you want about Facebook’s platform, but it’s hard to leave them. This week the Journal reported on evidence that teens often find Instagram particularly addictive—a finding that would hardly surprise anyone who’s on it regularly. Facebook’s platforms are designed to be habit-forming. Investors are not blind to this; Instead, it’s probably a major reason why they continue to buy, even as controversy has piled up around the company.
As far as addictive products go, Facebook is fascinating. Tobacco vendor Philip Morris International is on track to achieve $31 billion in revenue this year, according to FactSet and beer group Anheuser-Busch InBev. Before the pandemic, casino operator MGM Resorts International had less than $13 billion in revenue in 2019. Analysts estimate Facebook will post several times more revenue than each of those so-called sin stocks, at more than $119 billion this year.
“We want to build technology that improves people’s relationships and lives, not just takes up their time,” Facebook said in a statement. He said he had “invested billions in keeping people safe.”
Recent history shows that no matter how intimidating Facebook users are by the company behind the scenes, most people don’t change their habits permanently. Facebook added 180 million monthly users in the year after it was revealed that Cambridge Analytica, a data firm linked to President Donald Trump’s 2016 campaign, had improperly accessed the data of millions of Facebook users. Reviewing “The Social Dilemma,” a documentary showing how Facebook’s algorithms can manipulate human behavior, the New York Times advised readers to “unplug and run.” But Wall Street estimates that by the end of the third quarter, Facebook will have added 185 million monthly users since the movie’s Netflix release last September.
So will users now leave Facebook’s network because of reports of preferential treatment to its glamorous, high profile users or its divisive content? The bitter truth — and what Facebook investors already know — is that this is exactly the kind of stuff that keeps users engaged.
That doesn’t mean Facebook’s stock will always be impervious to its image problem. Consider the ways in which the company hopes to move forward. Data from Cowen’s survey shows that the penetration of competitor TikTok among people aged 18-24 has increased from 42% in Q2 of 2020 to 56% in Q3 of 2021. The survey didn’t cover younger demographics, but data from Jimini, an app for parents that tracks their kids’ smartphone habits, showed that nearly 70% of 10-year-olds in the US owned a smartphone in 2019. Girls use Tiktok. On its website, TikTok says it accommodates users under the age of 13 with a limited app experience that includes additional security and privacy protections.
Reaching young adults, teenagers and even young children is key to Facebook’s future, as evidenced by the company’s initiative to develop an Instagram app for children, although it requires the buy-in of adults. Will be But even parents so accustomed to Facebook’s products don’t necessarily approve of their kids using them.
More broadly, Facebook is now looking to transition from a social-media company to a “metaverse” company, creating a virtual forum of sorts for users to work, play, and buy things. That too is not without competition: technology companies such as Intel, Unity Software, Microsoft, and Nvidia have also discussed the metaverse in some form or another. Just because Facebook users can’t quit what they’re already doing today, doesn’t mean they’ll be lining up for something new. And everyone is consuming.
Facebook has already had to delay some development plans due to a lack of trust. The Libra cryptocurrency project, which was founded by Facebook but is run independently by a Geneva-based nonprofit, is a good example in 2019 after it was reportedly backed by several of its partners. It’s a clear sign that despite Facebook’s resilience today, the growth engines of the future may not be so easy to ignite.
Investors may not care how the sausage is made, but they should care as more consumers learn about it and find it relatable. No one can become addicted to something they refuse to try.
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