Ignore the 'Fake News' on Facebook

Facebook gets a lot of bad press, so we are quite often asked why it remains a Vestact recommended portfolio holding. The criticisms of the company mostly relate to the main Facebook platform, where some feel that it does not do enough to prevent the spread of fake news, hate speech and terrorist propaganda. Others feel that it is bad for society, as people spend too much time online, instead of chatting in person. The company's privacy policies are also attacked, and its CEO Mark Zuckerberg is accused of selling users' personal information to advertisers and other shadowy intermediaries.

I don't think that those criticisms are fair. For one thing, Facebook can't police every single thing that its community of billions of users post. How would you feel if everything that you wanted to put up on Facebook was delayed by a day before appearing, while someone in a cubicle farm somewhere in the world had to moderate or approve it first? Also, what about free speech? On balance, I feel that they do a reasonable job in taking down really offensive material like the recent New Zealand mosque attack footage.

Fake news is also hard to combat because right-wing groups and Russian spam bots compose messages and save them as jpegs (picture files) before posting them. Those are harder to catch than text messages, obviously. Plus, they get re-forwarded by cranky old users who actually believe the content.

As for privacy concerns, it is the responsibility of users to check their settings. If you don't want your interests to be assessed by the company's database systems and used to present you with tailored content and ads, then perhaps you should tell them that? Or leave altogether? Despite all the anti-Facebook yelling about privacy concerns, research shows that very, very few users are bothered by these issues.

In any event, Facebook stock has been trending higher in recent months, as you can see from the one-year stock chart below. It closed at $181.44 in New York last night (they don't take a four-day Easter holiday over there). The all-time high was $209.94 in July 2018, so it still has some way to go.



There are a couple of reasons for the move higher that I can think of.

Firstly, Facebook also owns Instagram, which has been doing very well. It now has over a billion monthly active users, and over 500 million users who access it every single day. Over 70% of its core audience is under the age of 35. Brands do very well on the platform, meaning that spending by large consumer companies on Instagram is soaring.

Secondly, the core market for Facebook is still the US. The North American ARPU (average revenue per user) is about $35 per quarter. With a Presidential election coming up, Facebook stands to benefit from a surge in political advertising. Donald Trump's 2020 re-election campaign is spending 44 percent of its Facebook advertising budget to target users who are 65 and older, according to a report from Axios. He has already spent $4.5 million on Facebook and Google ads in the first two and a half months of the year. Brad Parscale, who was the digital director for Trump's 2016 bid and is now his 2020 campaign manager, said in an interview with CBS's 60 Minutes in October 2017 that Facebook "was the method" behind Trump's success. Democrats certainly won't take this lying down and they really, really want to defeat him, so expect their spending to skyrocket in the months ahead.

Finally, Facebook also owns WhatsApp, with its billions of users, the company is rolling out monetisation strategies for that too. They include applications for businesses to service customers via the platform, and inter-user payment systems.

All-in-all, a good stock to own! I do, and so should you. Facebook is expected to report first-quarter earnings tomorrow after the market close. According to an aggregate of 14 institutional analysts' forecasts, the consensus earnings per share forecast for the quarter is $1.65. We will certainly cover the numbers in this newsletter.