Facebook falls after more firms cut ad spending
“Given the amount of noise this is drawing, this will have significant impact to Facebook’s business,” Wedbush Securities analyst Bradley Gastwirth wrote in a research note. “Facebook needs to address this issue quickly and effectively in order to stop advertising exits from potentially spiralling out of control.”
Facebook was already bracing for weakness in the second quarter, which ends this week. Chief Financial Officer Dave Wehner said in an April earnings call that he saw the “potential for an even more severe advertising industry contraction.”
The number of coronavirus cases has surged in the intervening months, prompting many parts of the country to slow or roll-back reopening efforts and giving advertisers added justification to rein in spending. Facebook’s sales will rise 1% in the June period, followed by a 7% increase in the third quarter, analysts predict, by far the smallest quarterly growth increases since the company went public.
Advertiser boycotts in July could cost Facebook more than $250 million in the third quarter if 25% of its top 100 buyers pause spending, and as much as $500 million if 50% of the top advertisers stop, according to Bloomberg Intelligence analyst Jitendra Waral.
Zuckerberg announced changes Friday designed to appease critics, but the Anti-Defamation League, one of the groups calling for the boycott, called the amendments “small.” Some analysts have said the financial impact of recent exits will be limited, citing past advertiser revolts.
Even so, this exodus is distinct in key ways, Bernstein Securities analyst Mark Shmulik wrote in a research note Saturday. There’s heightened pressure to publicly demonstrate that brands stand with civil rights groups, he said.