Facebook Stock: Likely to Survive the Current Dip

Posted On January 23, 2018 2:43 pm

Facebook stock fell sharply after the company’s CEO Mark Zuckerberg announced key changes in Facebook news feed algorithms, after which users will see more updates from their friends and family instead of businesses. The stock fell as Zuckerberg warned that this change might affect ad revenue and time spent on Facebook per user. But we believe that the latest dip is a great buying opportunity. The latest change will not impact Facebook’s fundamentals, which are strong and running on all cylinders.

Ad spending on Facebook is growing.  Analysts think that the change news feed will transform Facebook into a more personalized platform where people will be able to interact with their friends and family instead of being dogged consistently by businesses. This will increase monthly and daily activity.

Moreover, we believe that the latest announcement is just a temporary move by Facebook amid pressure from activists to deplete the element of addiction from its platform. A report published by Forbes says that Facebook had to announce the news feed change because it was under criticism from several industry outlets for promoting fake news and propaganda. Facebook will keep making tweaks to its algorithm in the future.

Facebook has over 2 billion monthly users. This number is huge when we consider that out of 7.6 billion people in the world, only 3.7 billion people have access to the internet.  The company’s revenue growth has been outpacing its market valuation in the past years, another good indicator of the health of Facebook stock.

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Business Will Stay On Facebook

Unlike most of the new reports circulating in the media, Facebook will not punish businesses significantly. Only those businesses whose posts do not generate people-to-people interact and comments will lose viewership. This means that Facebook wants to force businesses to create quality posts and ads. In the long run, this change will create quality ads and businesses on Facebook.

“Pages making posts that people generally don’t react to or comment on could see the biggest decreases in distribution,” the company said in an official statement.

The change will also filter out low-quality businesses and pages which are simply an extra burden on the Facebook network.

Facebook is also in a position to offset any decline in ads revenue on Facebook with gains from Instagram. Instagram has a whopping 500 million daily active users, and 800 million MAUs.

It is also speculated that Facebook will demand more money from advertisers to show their ads in news feeds in the future. This would result in increased ads revenue. The New York Times recently said in a report that Facebook’s revenue is growing in China, as China’s government spends “thousands of dollars” to buy Facebook ads. Taken together, this news indicates that Facebook stock has ample opportunities to bounce back from the current dip.

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