Facebook facing an ad boycott – dropping revenues ahead?

July 07, 2020 14:00

Facebook had some bad news coverage over the last week, starting on June 26, as the stock dropped sharply, losing nearly 15% from its June highs, even though it has recovered most of these losses over the last few days.

What happened?

Facebook is currently facing an ad boycott campaign from big companies like Verizon, Unilever, Starbucks, Coca-Cola, Honda, spirits giant Diageo, and many more.

The purpose of the boycott is that more and more organizations want to see Facebook taking action in regards to a stricter approach in tackling hate speech and disinformation like create a "separate moderation pipeline" for users who say they've been targeted because of race or religion reasons.

Also, advertisers seek information on how frequently their ads appeared near to content that was later labelled respectively removed because of hate and/or misinformation, and getting a refund for their advertisements.

Could this be the beginning of broader advertising spending cuts, dropping Facebook revenues and thus a sharper decline in the Facebook stock ahead?

How many companies will follow the advertisement boycott?

While Facebook said that it sets its policies based on principles rather than business interests, this reaction implies that the ad boycott is only about the financial aspect – which might not be the case.

Estimates show that there are currently around 8 million advertisers on Facebook, bringing Facebook global ad revenues around 69.9 billion USD in 2019.

And while it is certainly true that the advertisement budgets from the companies mentioned above like Verizon, Unilever, Starbucks, Coca-Cola or Honda on Facebook might be larger than from other, smaller companies, it might take a significantly larger group withholding funds to make much of a financial dent.

But it shouldn't be ignored that current developments in the global economy, recession fears and a negative impact on the revenue outlook for many companies in the months and probably years to come, currently advertising on Facebook, could result in broader marketing cost-cutting.

In addition to that, there is another noteworthy, long-term aspect: if Facebook now fails to address and change its way of moderation of hate and disinformation and leaving advertisers with the feeling of sponsoring violent, bigoted content or lies, the companies now boycotting and/or cutting their marketing expenses because of the Coronavirus pandemic could probably never return in the future.

In addition to the recent rally in tech shares and the Nasdaq100, risk-reward ratios for Short engagements in Facebook Inc. become interesting in our opinion.

How to trade Facebook Inc. CFD in this environment?

When looking at a daily chart, the recent break and push below 223.00 USD can certainly be considered a first "crack in the bottle".

While the overall mode in #FB stays bullish above the SMA(200), the break below 223.00 can clearly be considered to be an "interrupter" of the bullish sequence and the potential bearish divergence in the RSI(14) points to first diminishing bullish momentum.

As long as #FB does not break to new All Time Highs above 245.20 USD, any sharper correction in US tech shares could result in an even sharper decline in the stock of Facebook with a first short position being attractive with a break below 223.00, a stop at 245.20 and the region around 200 USD a first target on the downside.

Nevertheless, we consider the psychological mark around 200.00 USD only a stop-over could imagine a mid-term target in the second half of 2020 to be found around the current 2020 yearly lows around 140 USD:

Source: Admiral Markets MT5 with MT5-SE Add-on #FB chart (between March 14, 2019, to July 2, 2020). Accessed: July 2, 2020, at 10:00pm GMT - Please note: Past performance is not a reliable indicator of future results, or future performance.

In 2015 the value of #FB increased by 34.15%, in 2016, it increased by 9.93%, in 2017, it increased by 53.38%, in 2018, it dropped by 25.71%, in 2019, it increased by 56.57%, meaning that after five years, it was up by 160.1%.

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