In times of the Corona crisis, advertising revenue is developing noticeably worse, and costs for combating fake news are taking a toll.
Facebook: Fake news costs money – how much of a burden is Corona?
Because of discussions about data protection and fake news, Facebook has to take measures that also have a monetary impact. Advertising revenues are also currently developing worse than in the financial crisis of 2008/2009.
Advertising sales as the main source of income
Facebook now has 2.5 billion active users per month. With Instagram and WhatsApp, the group reaches a total of 2.9 billion users who use the social networks at least once a month. The tech giant continues to grow with its platforms, and there was an increase here even before the Corona crisis.
The most important income for the group continues to be advertising sales. In the last quarter of 2019, revenues of around $21 billion were recorded. Only around 1.6 percent of these did not come from advertising.
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Costs to combat fake news are rising
The costs of combating fake news and hate speech are increasing, while advertising revenue is decreasing.
The topics of data protection and fake news repeatedly lead to discussions. Facebook now has to hire more and more employees to check and delete fake news and hate postings. Especially before the start of the US presidential election campaign, criticism of fake news is costing the company money.
The current Corona crisis also shows that Facebook's business model is vulnerable to a lot of things. The company now has to react, especially to the spread of false news. For example, WhatsApp has a setting that makes it more difficult to forward messages en masse.
All of the efforts to combat fake news and hate speech resulted in costs rising by a third in the last quarter, more than the actual business. There is still an increase in profits, but this is noticeably lower than experts and investors had expected.
Challenges for Facebook
Facebook currently has a lot of challenges to overcome, all of which have a monetary impact on the company.
There are growing calls from political circles to relax data protection and encryption if security authorities want to investigate suspected cases.
Stricter data protection regulations in Europe make personalized advertising more difficult for users.
A settlement in the USA to resolve a legal dispute over facial recognition software demanded several million. Problems with the protection of user data caused billions of dollars in costs in the first half of the year.
Developments on the stock market
Analysts responded by lowering price targets, but remain optimistic overall.
Brent Hill from the investment house Jefferies continues to recommend buying securities, but warns of declining growth because advertising revenue could develop worse in the current Corona crisis than in the 2008/2009 financial crisis.
Goldman Sachs' Heather Bellini remains a Buy but lowered her price target for Facebook from $249 to $170. Douglas Anmuth from JPMorgan also recommends buying, although the price target was lowered to 225.
At the end of January, Facebook shares reached a record high of around $224, and by mid-March the price had plummeted to $137.
The papers are currently priced between $160 and $170. Facebook's market value is therefore more than 470 billion dollars. This is 170 billion less than at its peak.
Source: boerse-express.com
Article image: Shutterstock / By klevo
Notes:
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