Facebook (FB -4%) is selling off after Founder, Chairman and CEO Mark Zuckerberg announced that the News Feed on Facebook will be changed to feature more comments from friends and family, rather than commercial content from brands and media companies.
He wants Facebook to return to its roots in terms of connecting people.
"Now, I want to be clear: by making these changes, I expect the time people spend on Facebook and some measures of engagement will go down. But I also expect the time you do spend on Facebook will be more valuable. And if we do the right thing, I believe that will be good for our community and our business over the long term too."
That warning about engagement has spooked investors. The news took investors off guard, but it is not surprising to see changes coming from the world's dominant social network. Earlier this month, Mr. Zuckerberg announced that his 2018 resolution was to fix Facebook. In previous years, his resolution was more of a personal goal (learning Mandarin, vesting every US state, etc.). Facebook had become the biggest source of ‘fake news' and Mr. Zuckerberg clearly wanted to change the narrative around the social network.
While the initial response from investors has been negative, it seems unlikely that Mr. Zuckerberg and COO Sheryl Sandburg would suddenly be shunning Wall Street. Will this spell the end of the tremendous string of ‘beat and raise' reports the company has posted since figuring out the mobile business in 2013? Investors don't like uncertainty, so the negative response is understandable. Reduced ad load (quantity) will likely be offset by higher prices as demand remains very strong.
Facebook still has a ton of levers to pull in terms of monetizing its other massive properties including Instagram, Facebook Messenger and WhatsApp.
This news is a negative for publishers that have grown dependent on Facebook for viewers. It seems like a strategic positive for live news-focused social network Twitter (TWTR +5%).
We will hear more about the strategic shift when the company reports fourth quarter results on Wednesday, January 31.
Stifel downgraded Facebook's stock this morning but a number of other firms have defended it.
The stock has found support at the 180 level, which also coincides with the 50-day moving average.