Shares of Facebook (FB - Free Report) fell more than 4% in early morning trading Friday after the social media behemoth announced major changes to its News Feed. Facebook CEO Mark Zuckerberg said that the News Feed will now prioritize “meaningful social interactions,” meaning that users will likely see less content from businesses and publishers.
The initial investor concern seems to be centered on Zuckerberg’s assertion that the changes could mean users will spend less time on Facebook. The News Feed is one of the key areas where the company places advertising, so users spending less time on the feed—or Facebook in general—could spell bad news for the social network’s revenue picture.
It is also worth noting that businesses and publishers often have the resources to create more dynamic rich media content, including videos. A pivot to video has helped inspire much of Facebook’s growth over the past few years, as video advertising is typically more sought after than traditional banner ads.
Facebook’s News Feed overhaul comes in the wake of revelations that users were subjected to Russian-bought ads during the 2016 election cycle. As it turns out, a large part of Russia’s concentrated efforts to interfere in the U.S. election took place on public internet forums, and new findings suggest that more than 100 million users viewed ads from the country’s propaganda campaign.
Zuckerberg initially dismissed concerns about Russia’s presence on the social media platform but was later forced to apologize. Facebook executives, along with leaders from the likes of Twitter (TWTR - Free Report) and Alphabet (GOOGL - Free Report) , recently testified in front of Congress in relation to their knowledge of Russia’s political advertising.
Meanwhile, Facebook has found itself at the center of renewed public skepticism about the effects of social media. In December, the company acknowledged a University of Michigan study that showed certain uses of Facebook could be bad for one’s health. Earlier that month, former Facebook executive Chamath Palihapitiya told CNBC that the platform is “starting to erode the social fabric of how society works.”
Today’s announcement likely stems from a desire to bring Facebook back to its roots. The social network was originally designed to create online spaces for friends and family to interact with each other, but in recent years, it has become clogged with manicured corporate content. While that could result in users spending less time on the platform, it might just help repair Facebook’s scarred public image.
Want more analysis from this author? Make sure to follow @Ryan_McQueeney on Twitter!
Zacks Editor-in-Chief Goes "All In" on This Stock
Full disclosure, Kevin Matras now has more of his own money in one particular stock than in any other. He believes in its short-term profit potential and also in its prospects to more than double by 2019. Today he reveals and explains his surprising move in a new Special Report.
Download it free >>