There's a rift growing between what Wall Street and the rest of the world thinks about Facebook - and only one side will win
- Facebook reported Wednesday that 50 million fewer hours are being spent on the service per day as a result of its News Feed algorithm change.
- But Facebook argues its users are getting a higher quality experience, which is good for its business long term.
- Wall Street is eating it up. Facebook's stock was up Wednesday, despite other fundamental problems with the company like rampant abuse of its platform.
On Wednesday, Facebook announced that its recent overhaul of the News Feed algorithm caused users to collectively spend 50 million fewer hours per day on the service. Another worrying statistic: Facebook reported that daily active users fell in the US and Canada for the first time.
It turns out Facebook might not need a News Feed full of memes, clickbait, and viral videos to be successful. Even though much of the public and media may have soured on the social network, Wall Street remains bullish on the company's capability to grow.
On the earnings call Wednesday, the messaging from Facebook's management was clear: Decreased usage might actually be a good thing, leading to better ads with higher margins. It's also good news for Facebook's video product, Watch, which features high-quality videos produced by traditional media companies and Facebook itself."By focusing on meaningful interaction, I expect the time we all spend on Facebook will be more valuable," Facebook CEO Mark Zuckerberg said during Wednesday's earnings call. "I always believe that if we do the right thing, and deliver deeper value, our community and our business will be stronger over the long term."
Wall Street is lapping it all up, and investors seem to buy Facebook's line that the changes will result in a better experience over the long term for users, thus driving higher advertising rates. After an initial dip after Facebook's earnings were first released Wednesday, the company's shares hit an all-time high on Thursday, jumping 4% based on all that optimism."We continue to believe that any slowdown in time spent will be compensated for by higher-quality time spent, and that any trimming of ad load will be compensated for by higher ad pricing," Michael Graham, an analyst at Canaccord, wrote in a research note Thursday.There are now two competing narratives surrounding Facebook.
On the one hand, you have a company that's proven over and over that it's struggling to combat abuse of its platform. Hours before its earnings were released Wednesday, Facebook's trending section was promoting conspiracy theories about the Amtrak crash involving GOP members of Congress. The company has offered numerous solutions to its abuse problems thanks to several News Feed algorithm tweaks and the promise to hire more human moderators, but so far most of those efforts have fallen flat.
On the other hand, the future of Facebook's business has never looked brighter. There's no indication its ad margins are slowing down, and investors remain bullish on its ability to grow despite all the failures and criticism from the media and governments.Facebook may be facing a reckoning for its role and influence on politics, media, and social well being, but Wall Street seems to be ignoring all that for now.
But Facebook is an advertising business, and advertising demands time and attention. With all the problems Facebook is facing, reworking the News Feed to demand less attention from users could be dangerous.
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