Facebook ($FB) is one of the most popular stocks on Vetr.com, and is included in nearly one in four user watch lists. Accordingly, we pay attention to $FB. And last week, the company decided to do something that many users applauded, but left many analysts scratching their heads: They tightened up their promotion policies.
The move to restrict promotional posts in your news feed is not what you think, however. Instead of the normal gripes from users about paid advertisements (“sponsored” is the new word), this move focuses onunpaid, yet promotional in nature, posts. In other words, organic posts that people (and companies) write on their walls for all to see, but that are actually trying to sell something. Unsurprisingly, companies have become adept at social media, and these posts usually try to get you to download an app, play a game, buy a product, etc.
On the one hand, this cleans up the news feed feature of $FB and will result in less intrusion into your social ecosphere. Users will like it, which is a win for Facebook as it tries to avoid the “evil” moniker that somehow gets bestowed on technology companies that get too large.$FB itself is undoubtedly thinking that by shutting off the countless companies that have relied on $FB for essentially free advertising, they will drive some number of them to actually pay for what they have previously enjoyed for nothing.
But there is a risk. These activities increase traffic, build interaction, generate buzz and undoubtedly resulted in some companies becoming paid clients of Facebook anyway. Instead of bringing $FBclients, the move may actually cost them business down the road.
There is also the minor concern about why, exactly, $FB is taking this stance now. Is sales growth getting harder to come by? On the surface, things are fine; revenues last quarter were up 59%, users are still (amazingly) growing at a double-digit pace, the balance sheet is strong and valuation metrics are attractive. Nonetheless, the idea of squeezing out promotional posts seems a little unnecessary, especially given the outlook.
$FB earns three stars (hold) on vetr.com, spread across 23 ratings. With an average 12-month price target of $92.20, our users feel there is still upside for the company, but they’re not ragingly bullish by any stretch.
Wall Street has a penchant for pricing future goodness into current prices. What do you think about Facebook? Is the stock a buy from here?
Disclosure: At the time of this writing, Vetr had no position in the equities mentioned in this report.