Facing a lot of criticism over wasting people’s time, affecting their mental health, and favoring advertisers & publishers, Facebook had a change of heart. It began thinking about its core objective of connecting people. So, it recently announced the prioritization of posts from family and friends over advertisers, pages, and publishers. The company decided to change in its algorithm to make people say, ‘time well spent’ on the platform. To enable ‘meaningful’ interactions, it decided to popularize posts with most comments over most likes and shares. the Facebook product team would ensure the engagement-based content is promoted over the passively read. However, the changes may not play well for advertisers and media companies, but it would provide better experience to users.
The announcement impacted Facebook’s share prices. It is on the verge of registering the worst session in three months. The share prices dropped by more than 4 percent on Friday after Thursday’s announcement. The company’s share price plummeted by $8.29 to $179.47. It the share price closes at that value, it would be the biggest roll down in price since September. Moreover, this would reduce the market value of the U.S. giant by $23 billion. This value is more than the market valuation of its rival Snap Inc., parent company of Snapchat.
Investors have been hesitant to retain Buy rating on the shares after the announcement. Facebook shares rose 48 percent over the past 12 months. The U.S. social media giant Facebook has been a leader in the technology rally that has driven the S&P 500 to record highs. However, the revenue of Facebook has dramatically increased 45 percent in 2017, which marked an extraordinary achievement for the company of this size.
A senior trader at Wedbush, Joel Kulina outlined few hedge funds took advantage of Friday’s decline in Facebook’s shares to strengthen their positions. He added, “Guys were hoping there would be more of a pullback so they could buy more. They don’t think there are any real cracks in the Facebook story.”
The social media giant has been under investigation for suspicion of meddling in 2016 presidential election in the U.S. along with accusations of spreading fake news. It decided to cast aside fake and low-quality news and only promote high-quality news. This gives headache to many news agencies and publishers as the Facebook policy about determining trustworthy and high-quality news has not released yet and it may eliminate the posts that are not considered trustworthy.
News sites, on the other hand, which are approved on its platform may reduce the visibility. Many publishers, media giants, and news agencies are dependent on Facebook for their traffic. Moreover, if visits on their sites reduce, advertisers will not be interested in posting advertisements on their sites, which in turn, will reduce revenue from their sites as well. But the California-based social media giant reduced their worries by outlining that it would change algorithms for non-advertising content from publishers and media companies, such as viral videos, news stories, and others. However, the firm will not change algorithm for paid advertising. This could lead businesses to spend more money on advertisers and consequently, prices will increase.
John Ridding, the Chief Executive Officer of the Financial Times, outlined that there is a domination of online advertising revenue by search. He added, social media platforms pressurize media firms to spend on advertising. He showed support of FT to recognize and promote trusted news, but he cautioned that further measures need to be taken to address this challenge.
There is an uncertainty of economic impact of the changes in newsfeed of Facebook. Moreover, it is uncertain how the changes will impact Facebook’s business in the future.