Facebook's News Feed change wiped out $25 billion - but it could be good for the company in the long run
- Facebook announced major changes to its platform, which will refocus the News Feed on content from friends and family.
- Advertisers and investors were worried about how the changes would affect advertisements and revenue.
- Watch the company's shares trade in real time here.
Facebook said on Thursday it would be adjusting its primary newsfeed to focus more on content from friends instead of publishers, a decision that wiped close to $25 billion off the company's market capitalization on Friday.
Speculation about the financial impacts of the move was immediate and plentiful, but despite the stock move, most Wall Street analysts agreed it will ultimately be good for the company.Facebook gets a vast majority of its revenue from advertising on its platforms. Any change in Facebook's News Feed could potentially affect its ability to sell advertisements against the feed, which is likely what initially spooked investors and sent shares tumbling. Facebook ended the day about 4.2% lower on Friday.
The company later sent an email to its media partners that explained the changes in a bit more detail. The company told publishers that their pages may see a decline in organic reach but that posts that start meaningful conversations will be less affected by the changes. It also said you won't be able to throw money at clickbait posts to buy reach.
Once analysts had a chance to digest the news, many came around to the potential benefits, but said near-term uncertainty will likely remain as the company enters its quiet period before reporting earnings on January 31.
"In our view, making the feed more relevant should boost user and engagement growth over time," Mark Mahaney, an analyst at RBC Capital Markets, wrote in a note to clients. "Facebook is making the service more social and less media, and that's likely a positive for the vast majority of users."
Facebook is betting that making its platform a place people actually like visiting is better than trying to maximize engagement metrics like reactions and comments.
Sam Kemp, an analyst at Piper Jaffray, said even if advertising on the platform declines, it could just be shifted over to Instagram. The two platforms share the same backend so companies could easily spend their ad budgets on Facebook's sibling if ad volume wanes or prices move higher.The company's announcements didn't mention a reduction in the ad load, which its brought up in the past as a way to highlight the company's loyalty to users instead of advertisers, Kemp pointed out. He took this to mean the number of ads on Facebook is likely to stay consistent after the changes.
Brian Nowak, an analyst at Morgan Stanley, is certain Facebook will continue to grow its revenue in the long term.
"FB has multiple levers of ad revenue growth (falling ad load on core, offset by rising ad unit pricing and an increasing ad load on Instagram)," Nowak wrote in a note to clients.
Whatever the exact changes are, Facebook is likely to be helped by its popularity among advertisers. Nearly 60% of advertisers think their return on investment on the platform has increased in the last six months, according to Mahaney. And a recent survey of ad buyers found that 96% of them would rather buy ads on Instagram instead of Snapchat.
And even after the sharp decline on Friday, Facebook is down just 0.87% this year.