Anyone who thought Facebook just “woke up like this" need only read The Wall Street Journal’s Facebook Files series this week to understand that things aren’t so flattering right now beneath the surface. But even the harsh light of critical media reports hasn’t been enough to scare away 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—cause users harm, often in ways only the company fully understands. 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 traced the desire to kill themselves to Instagram, according to the Journal’s report. Yet investors seemed to largely gloss over the disturbing revelations: As of Thursday’s market close, Facebook’s stock had lost less than 1.5% of its value this week.
Say what you want about Facebook’s platforms, but it is hard to quit them. The Journal this week reported on evidence that teens often find Instagram particularly addictive—a conclusion that would hardly surprise anyone who is regularly on it. Facebook’s platforms are designed to be habit-forming. Investors aren’t blind to this; rather, it is likely a key reason they continue to buy in, even as controversies around the company have piled up.
As far as addictive products go, Facebook’s are lucrative. Tobacco seller Philip Morris International is on pace to take in $31 billion in revenue this year, according to FactSet, and beer conglomerate Anheuser-Busch InBev $45 billion. Before the pandemic, casino operator MGM Resorts International did less than $13 billion in revenue in 2019. Analysts are forecasting Facebook will post multiples more revenue than each of those so-called sin stocks, at more than $119 billion this year.
“We want to build technology that makes people’s relationships and lives better, not to simply take up their time," Facebook said in a statement, adding that they have “invested billions in keeping people safe."
Recent history suggests that no matter how appalled Facebook’s users purport to be by what the company does behind the scenes, most don’t permanently change their habits. Facebook added 180 million monthly users in the year after it revealed that Cambridge Analytica, a data firm with ties to President Donald Trump’s 2016 campaign, had improperly accessed data on tens of millions of Facebook users. Reviewing “The Social Dilemma," a documentary depicting 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 film’s Netflix release last September.
So will users now leave Facebook’s networks en masse because of reports of preferential treatment for its glamorous, high profile users or its divisive content? The hard truth—and what Facebook’s investors already know—is that is exactly the kind of stuff that keeps users engaged.
That doesn’t mean Facebook’s stock will remain forever impervious to its image problem. Consider the ways in which the company hopes to grow next. Survey data from Cowen suggest competitor TikTok’s penetration among people aged 18-24 has surged from 42% in the second quarter of 2020 to 56% in the third quarter of 2021. Younger demographics weren’t covered in the survey, but data from Jiminy, an app for parents that tracks smartphone habits of their children, showed that in 2019 about 70% of 10-year-old girls with smartphones in the U.S. used TikTok. On its website, TikTok says it accommodates users under the age of 13 with a limited app experience that features additional safety and privacy protections.
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Continuing to reach young adults, teenagers and even younger children is key to Facebook’s future, as evidenced by the company’s initiative to develop an Instagram app for kids, albeit one that will require adults’ buy-in. But even parents addicted to Facebook’s products themselves won’t necessarily approve of their children using them.
More broadly, Facebook is now looking to transition from a social-media company into what it calls a “metaverse" company, building a kind of virtual forum 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. Just because Facebook’s users today can’t quit what they are already on, doesn’t mean they will line up to get hooked on something new and all consuming.
Already Facebook has had to delay some growth plans because of a lack of trust. The libra cryptocurrency project, which Facebook founded but is independently run by a Geneva-based nonprofit, is a good example after several of its partners reportedly backed out in 2019. It is a clear sign that, despite Facebook’s resilience today, future growth engines may not be so easy to ignite.
Investors may not care about how the sausage is made, but they should care as more consumers learn about it and find it concerning. No one can get addicted to something they refuse to try.
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