Back to top

Facebook Roundup: Earnings, Elections, UK, Brazil, Iran, More

Read MoreHide Full Article

Facebook (FB - Free Report) reported very strong earnings despite investor misgivings about its recent scandals and the possible impact on its numbers. Other news includes shareholders pushing the company to remove founder Mark Zuckerberg from the chairmanship and fresh accusations of fraud on its advertising partners. Here are the highlights-

Earnings

Facebook reported solid earnings growth on revenue that missed by a sliver. Unsurprisingly, the Asia/Pacific market remains its strongest because of relatively low penetration rates and slower engagement in developed markets. Usage in Europe was also impacted by the implementation of GDPR and a certain amount disenchantment with the platform following the many scandals it has been involved in of late.

Advertising revenues, around 92% of which were attributable to mobile saw greatest strength in the Asia/Pacific and Europe, although all regions grew strong double digits. Feed ads are the main contributor although stories ads are expected to gain momentum over the next couple of years, as the company taps the additional potential based on user preferences. The initial cost of getting more users and advertisers to use the format may mount however.    

Read more: Facebook (FB - Free Report) Q3 Earnings Beat Estimates, Revenues Up Y/Y

U.S. Elections

Facebook has created a tool that can help political candidates directly pitch to millions of people. Candidate Info as the tool is called features thousands of direct-to-camera vertical videos where federal, state and local candidates introduce themselves, talk about their qualifications and offer details about their priority policies and goals if they are elected. The videos appear in users’ news feeds and will soon also be aggregated under an Election 2018 bookmark in the mobile app.

Separately, Facebook and Twitter (TWTR - Free Report) have denied evidence of Chinese meddling in U.S. elections after president Donald Trump accused China of doing just that, which Beijing promptly denied.

The company hasn’t seen the end of its troubles with respect to sentiment swaying at election time. The New York Times and Vice News have independently found that Facebook’s measures to improve election ad standards falls way short of requirements. That’s because its ad buyer verification method doesn’t extend to the "Paid for by" disclosure.

So an anonymous identity can be assumed in that field, including names like Tom Perez, Islamic State and Mike Pence (as Vice found). This defeats the purpose of the measure. Facebook has said that such ads shouldn’t have been approved, but as of now there seems to be a gap between the safety measures it says it intends to take and those that are actually operational.

UK Fine & Hire

The UK slapped a 500,000 ($645,000) fine on Facebook, which the social networking giant can shrug off pretty easily. But this was the maximum amount allowed under the old privacy rules. The EU has since moved on to the GDPR, which the UK has also adopted in substance.

The fine was for allowing individual app makers between 2007 and 2014 access to user data without their clear and informed consent, allowing one app developer, Dr Aleksandr Kogan and his company GSR, to harvest the Facebook data of up to 87 million people worldwide that was then sold off to a Cambridge Analytica.

Under the current rules (after May 2018), Facebook may have been fined up to 4% of its global revenue, or 17 million pounds.

The former British Deputy Prime Minister Nick Clegg has been appointed by Facebook to lead its global affairs and communications team, amid a constant stream of scandals related to privacy, fake news and election meddling. He willreport to Chief Operating Officer Sheryl Sandberg.

Brazil Elections

Facebook said it banned 100,000 accounts in Brazil where far-right politician Jair Bolsonaro took up against leftist Workers’ Party candidate Fernando Haddad in elections held on Oct 28. The company’s so-called War Room for detection of fake accounts spreading propaganda and inflammatory material to sway public opinion detected the activity and allowed the company to act quickly.

However, WhatsApp couldn’t avoid government involvement since messages on the platform are encrypted and so unavailable to Facebook. So the Brazilian top electoral court TSE approved the opening of a probe over actions to distribute bulk electoral messages against leftist presidential candidate Fernando Haddad over the messaging service.

Iran-Related Fake Accounts

Facebook’s cleanup operations are in full swing ahead of the U.S. midterms. Its threat intelligence team, part of its new election-focused War Room, detected unusual activity related to some 82 pages, groups and accounts (33 Facebook accounts, 30 Facebook Pages and three Facebook groups, as well as 16 Instagram accounts) that were posing as British and American citizens to move liberal opinion in the two countries, according to the Atlantic Council's Digital Forensic Research Lab.

The accounts had reportedly attracted over a million followers who were systematically exposed to "politically charged" topics such as race relations, opposition to U.S. President Donald Trump and immigration.

In the words of Ben Nimmo, an information defence fellow with the Digital Forensic Research Lab, "It looks like the intention was to embed in highly active and engaged communities by posting inflammatory content, and then insert messaging on Saudi and Israel which amplified the Iranian government's narrative…Most of the posts concerned divisive issues in the U.S., and posted a liberal or progressive viewpoint, especially on race relations and police violence."

Shareholders Don’t Want Zuckerberg as Chairman

Several big shareholders including state and city treasurers from Illinois, Rhode Island and Pennsylvania joined the New York City Pension Funds and Trillium Asset Management in a proposal to Facebook’s board to separate the CEO and chairman positions, as is common practice even in other technology firms such as Alphabet (GOOGL - Free Report) , Microsoft (MSFT - Free Report) and Apple (AAPL - Free Report) .

The proposal is the result of a number of missteps by Facebook in dealing with foreign meddling in U.S. elections, a massive data breach and the Cambridge Analytica scandal.

For what it’s worth, it will be put to shareholder vote at the company's annual shareholder meeting in May 2019 that can easily be defeated by the shareholder with 60% voting rights, i.e. Zuckerberg.

Meanwhile the company decided to settle with shareholders that opposed Zuckerberg’s decision to sell most of his shares while maintaining control over the company through the creation of a special class of shares. The board obviously approved the move but Zuckerberg decided against it last year. By paying $67.5 million in legal fees through his insurance company, he has now avoided explaining his actions (initial demand was for $129 million).

Fresh Lawsuit for Inflating Video Views

Crowd Siren, which accused the company of falsely inflating video viewership numbers in a California court case back in 2016, is now saying that Facebook knew about the problem for a long time before telling its advertising partners.

On perusing documents provided in the court case, Crowd Siren discovered that some advertisers raised the issue way back in July 2015 and the company sat on it for a year while trying to figure out how to downplay the impact. It finally let its partners know in 2016 that ad viewership numbers were inflated by 60-80%. Crowd Siren says that the inflation was in fact 150-900%.

The organization is now accusing the company of fraud (that Facebook is brushing aside) and asking for an unspecified amount of punitive damages, legal fees and other relief.

Recommendations

Facebook shares carry a Zacks Rank #3 (Hold). You may instead want to consider the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

 

Today's Stocks from Zacks' Hottest Strategies

It's hard to believe, even for us at Zacks. But while the market gained +21.9% in 2017, our top stock-picking screens have returned +115.0%, +109.3%, +104.9%, +98.6%, and +67.1%.

And this outperformance has not just been a recent phenomenon. Over the years it has been remarkably consistent. From 2000 - 2017, the composite yearly average gain for these strategies has beaten the market more than 19X over. Maybe even more remarkable is the fact that we're willing to share their latest stocks with you without cost or obligation.

See Them Free>>



More from Zacks Analyst Blog

You May Like

Published in