Facebook’s (FB - Free Report) definition of “terrorism” is creating a humanitarian crisis. According to a United Nations (UN) Human Rights expert, as quoted by The Independent, the social network giant treats all non-state groups that use violence, irrespective of their goals, as “terrorists.”
Per Fionnuala Ní Aoláin, the UN Human Rights Council independent expert, “Facebook's policy did not take account of rebel armed groups that comply with international humanitarian law.”
Moreover, in a letter to Facebook CEO Mark Zuckerberg, the Human Rights expert blamed the company’s wider definition in helping a number of countries crack down on groups that have shown dissent against the state, irrespective of being violent or peaceful. She has also urged the company to “ensure there is a way to challenge wrong decisions.”
Facebook “Too Slow to Act” Hurts Credibility
Of late, Facebook has been too slow to act on a number of incidents, be it the Cambridge Analytica scandal or the Rohingya issue in Myanmar. This sluggishness in acting prudently has severely tarnished Facebook’s brand value as well as credibility, which does not bode well for investors.
The stock has lost 0.4% in the past year compared with the S&P 500’s rally of 8.8%. Notably, it was the worst performing stock among the FAANG group in the last year.
Moreover, the latest observation by the UN expert can brew up a fight between Facebook and Human Rights activists. We believe negative publicity, in this case, can seriously hurt the company’s reputation that might prompt an advertiser exodus. The company generates almost 98% revenues from advertising.
Increasing Regulations to Stifle Growth
Facebook is now under considerable pressure from regulatory bodies for the way it deals with fake news and the manner in which customer data is collected and shared on its platform.
Notably, the DoJ is trying to get Facebook help crack encrypted voice messages on Messenger, but the former is resisting the same on grounds of privacy violation. Also, recently, this social media giant was sued by the U.S. Department of Housing and Urban Development (HUD) citing discrimination.
Apart from increasing regulations in the United States, Facebook has received warning from the Indonesian government that if any allegations similar to the Cambridge Analytica data breach surface during the upcoming elections, the application will be stopped in the country.
The warning was not only directed at Facebook but also applicable for other key social media players such as Twitter (TWTR - Free Report) and Alphabet’s (GOOGL - Free Report) Google owned YouTube.
We believe increasing regulations doesn’t bode well for Facebook. The anticipated increase in censoring is likely to hurt user growth rate, which slowed down in the last reported quarter. The company added just 22 million users worldwide, its lowest quarter-over-quarter jump since early 2011. Moreover, Facebook’s daily active users declined from 282 million to 279 million in Europe.
The declining user base doesn’t bode well for the company. Moreover, the social networking platform has lost its popularity among teenagers primarily to Snap’s (SNAP - Free Report) ephemeral messaging service, Snapchat. This is also expected to hurt Facebook’s advertiser growth rate, going forward.
Currently, Facebook has a Zacks Rank #4 (Sell).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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