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Facebook Advertisers Boycott, and You Make More Money

Social media giant Facebook Inc. (NASDAQ: FB) is in hot water again.

This time, people are angry at the company's apparent refusal to take down hate speech, calls for violence, and other distasteful content from the network.

So far, more than 160 companies have signed up for the "Stop Hate for Profit" campaign, pledging to "pause" advertising on Facebook.

We're talking about big names like Ben & Jerry's, Coca-Cola, Hershey's, Honda, Levi Strauss, Starbucks, The North Face, Unilever, Verizon, and many more. All of these companies will not be buying Facebook ads in July, and some are going even further.

Since almost all of Facebook's $70 billion in revenue comes from advertising, this is hitting CEO and founder Mark Zuckerberg right where it hurts.

Or at least, that's what we're being told.

As the advertising boycott really took off last Friday, Facebook stock dropped 8.32%. Zuckerberg himself lost about $7 billion in wealth because of it. Stock markets as a whole went down partly because of this.

But don't believe the hype. Facebook will not only survive this scandal; it will grow even bigger.

In fact, this is a great opportunity to buy the dip. Here's why...[mmpazkzone name="in-story" network="9794" site="307044" id="137008" type="4"]

A Scandal Is Nothing New to Facebook

This isn't the first scandal to rock CEO Mark Zuckerberg and his company.

In 2016, Facebook was accused of allowing foreign meddling in American elections. The same year, it was caught inflating the amount of time users spent looking at video ads by up to 80%, misleading advertisers.

In 2017, Facebook was hacked and exposed the private information of 50 million Facebook and Instagram users. The reason was that the company had not been encrypting passwords. Once a hacker breached the network, they simply had to download text files with user passwords in them. Mind you, this means Facebook employees also had easy access to user passwords all this time.

In 2018, the Cambridge Analytica scandal broke, revealing that Facebook had allowed the personal data of millions of users to be used, without their consent, for the purposes of political advertising.

Last year, security researchers found that Facebook's Messenger app allows websites to easily figure out who you've been messaging.

Facebook also announced that it removed 3 billion fake accounts just in the last quarter of 2018 and the first quarter of 2019. And then another 3.2 billion for the six months after that. While that's part of being a free and open platform, it's pretty clear that the company has been focused much more on revenue than other companies like it.

And this is just a small number of the many scandals that Facebook has gotten itself into since its founding in 2004.

And with every scandal, Facebook goes through the same dance. We've all seen it.

First, the company tries to wait out the storm.

Then, when that doesn't work, it apologizes. Starting in 2009 with Facebook's first apology, it feels like Facebook or Zuckerberg himself have apologized for privacy breaches or some other scandal almost every year.

Then, it promises to do better. Usually Facebook even implements changes (some small and some more significant) to appease its critics.

But once those critics have declared victory, the dust has settled, and the media spotlight has moved on to some other scandal, Facebook remains. And continues to grow.

And that makes shareholders happier than before. Just look at this chart:

As you can see, even the Cambridge Analytica scandal couldn't keep Facebook down for long, despite several governments starting investigations into the firm.

In fact, Zuckerberg's belated promise to change Facebook's policies and practices after that scandal still hasn't been fulfilled.

And this content moderation scandal Facebook is currently embroiled in may end up getting less traction...

The Law Is on Facebook's Side

In short, what the Stop Hate for Profit campaign wants is for Facebook to moderate its users' content more.

After examples were given of some mass shootings and other atrocities being live-streamed on the site, Facebook has promised to do better.

However, it refuses to apply most of these rules to political ads, claiming that to limit those would be counter to freedom of speech.

Pressure on Facebook's content moderation policy is also building from another source. U.S. President Donald Trump has recently revived the call to change the laws that govern how responsible social media companies are for the content their users' posts.

This is part of a longer-running concern from some more outspoken right-wing commentators who claim posts sharing their content are unfairly labeled as "misleading" more often than that of their political opponents.

Now, Facebook says it does take down posts from private individuals that call for violence, but will not do so if it's a politician saying it. The process also seems to take a fair bit of time, and does not seem to extend to members-only groups and forums on Facebook, where distasteful content appears to have free reign.

Under U.S. law, Facebook and other social media companies have a lot of leeway here. Section 230 of the Communications Decency Act of 1996 states that, "No provider or user of an interactive computer service shall be treated as the publisher or speaker of any information provided by another information content provider."

It also shields online content companies from civil liabilities for moderating or removing content they don't like, even if that content is constitutionally protected, as long as the companies do so in good faith.

It's worth noting here that in the United States, "hate speech" is constitutionally protected under the First Amendment unless it calls for imminent violence against a person or group. This is unlike large parts of Europe, where hateful language is more criminalized, and social media networks are often required to moderate it more heavily.

In short, Section 230 allows companies that post other people's content online to moderate that content more or less as they want to and be largely immune from legal claims for moderating too much or too little.

No One Likes Section 230 Anymore

This leeway and legal immunity is thought by experts to be a key reason why the Internet was able to grow so fast, leading them to calling Section 230 "The 26 words that created the Internet."

But as we're seeing now, Section 230 has also opened up social media companies to a lot of criticism. On the one hand, advertisers are boycotting Facebook because it does not moderate hate speech. On the other hand, some politicians and commentators criticize Facebook for moderating their content too much.

Currently, Section 230 allows Facebook to do both. The company can moderate basically as much or as little as it wants. Some competitors, including Twitter Inc. (NYSE: TWTR) and Alphabet Inc.'s (NASDAQ: GOOGL) Google, moderate content more heavily, usually removing hateful or misleading content or ads, rather than simply flagging it as such or leaving it untouched.

Even so, those stocks also took a hit on Friday, despite their more moderation-heavy policies.

Now there's talk from both Democrats and Republicans of rewriting Section 230, and the U.S. Department of Justice recently issued guidelines for how it would like the law to be changed.

But seeing as how Republicans want less moderation from Facebook and Democrats want more, I wouldn't bet on any changes to the law soon. Especially as it's so fundamental to the Internet as we know it.

Silicon Valley would get up in arms over any attempt to rewrite it, regardless of how they may feel about Zuckerberg.

Which is probably why the Stop Hate for Profit campaign is trying to influence advertisers instead of campaigning to get the law changed.

But I doubt that's going to work any better...

Facebook Will Weather This Storm Just Like It Has Before

Look, Facebook has about 8 million advertisers. Even 160 large companies boycotting the platform won't make a huge difference.

Especially as many of them have promised to pause their ad spending only for July.

Not to mention that the COVID-19 pandemic means Facebook is more important for advertisers than ever before.

Even in states that are reopening and don't have a new surge of infections, people are still spending more time at home. That means movie trailers in cinemas, billboards, flyers, and so on are just wasted advertising money. No one can see them.

Advertising online is the only avenue left, and Facebook is basically the only game in town there. According to eMarketer, Facebook captured 83.3% of online social ad spending last year.

There's just no competing with that. TikTok or Snap Inc.'s (NYSE: SNAP) Snapchat are never going to catch on with the older people who have become Facebook's core audience.

And keep in mind, this is an election year.

For better or worse, Facebook has shown itself to be a crucial tool in sending specific political messages to very tightly identified people. The platform is so useful to political campaigns precisely because it gives so much information about its users to advertisers.

The very reason the company is so unpopular is why it continues to make so much money.

In fact, Facebook makes more profit per employee than any other company, and almost double what the runner up, Apple Inc. (NASDAQ: AAPL), makes. That shows just how much money Facebook makes from handing its users over to advertisers in exactly the right way.

That simple fact isn't changing anytime soon.

So if you feel strongly about Facebook and its many issues, go ahead and sell your shares.

But don't do it because you worry about how this latest scandal will hurt the company's business.

Instead, buy the dip. Because Facebook will recover, as it always does. It may not get a lot of love, but it's too important to almost everyone to go anywhere.

Like it or not, Facebook is staying, and it will keep making unbelievable amounts of money. The last fiscal year that ended March 31, 2020, saw the company make a 24.44% year over year growth in revenue.

Bet against that trend at your own risk.

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