In today's Finshots we see why Facebook and its stock has been under such pressure this past year

The Story

Facebook has been having a bit of a horrid time lately. Its stock is down 14% since last month and it doesn’t seem as if a rebound is likely any time soon.

So, you have to ask — What’s happening with the company? And why are investors panicking?

Well, for starters, it’s not all down to just one thing. Instead, there seems to be a multitude of factors at play. Take for instance what happened a couple of days back — Facebook, Instagram and Whatsapp all went down simultaneously and the outage persisted for a good 6 hours. As one researcher put it — “It was as if someone had “pulled the cables” from their data centres all at once and disconnected them from the Internet.”

The outage, it turns out had to do with configuration changes Facebook made to its backbone routers. And while they did fix the issue soon after, Fortune estimates the company may have lost around $99.75 million in revenue during that time — a cumulative effect of all the ads they couldn’t run, and all the transactions that didn’t go through.

But investors don’t see it this way. They look at it as a precursor to all the things that could go wrong. If Facebook needs 7 hours to fix an outage, it doesn’t exactly inspire confidence in the company’s ability to troubleshoot similar problems in the future. So in all likelihood, they’ll be more critical of such developments.

Elsewhere, Facebook has also been dealing with a whistle-blower complaint.

Last Sunday, CBS aired a news program with a former Facebook insider, Frances Haugen, who alleged that the company had been deceiving investors about how it had been dealing with hate speech and misinformation on its platform. She had earlier confided with the Wall Street Journal who went on to publish “The Facebook files” — a multi-part series detailing how Facebook researchers had identified the platform’s ill-effects on teens and adults only for the top management to ignore them completely.

And it wasn’t just her statements that lent credence to the accusation. It was a dump of internal documents that prove beyond all reasonable doubt that Facebook knew what was happening.

As one article in the Washington Post notes — "Haugen’s document dump revealed what many suspected but couldn’t prove: that Facebook created more lenient secret rules for elite users, that Instagram made body issues worse for one in three teen girls, and that Facebook knowingly amped up outrage on its main site through an algorithm change in 2018."

The whistle-blower is expected to testify before US lawmakers today and many experts believe this could potentially invite new regulations that may ultimately hurt the company’s prospects.

Then there was the whole debacle with Instagram kids. Internal documents show how Facebook considers “tweens” — those aged between 10 and 12 an important audience for the future. So in a bid to exploit the opportunity, the company began working on a new platform specifically designed for this age group.

However, after considerable criticism from all circles, the company said in a statement that they were planning to pause the launch of this new platform until further notice. As Adam Mosseri, head of Instagram noted — "While we stand by the need to develop this experience, we’ve decided to pause this project. This will give us time to work with parents, experts, policymakers and regulators, to listen to their concerns, and to demonstrate the value and importance of this project for younger teens online today."

And while many people lauded the move, it was once again becoming apparent that Facebook could no longer get away with everything. There’s increased scrutiny on every new announcement from the company — mergers, new product launches, algorithm changes, you name it. It’s almost as if lawmakers and the public have finally come to recognise the significant influence Facebook wields in the public sphere. And they want to limit this influence.

For investors, however, this is a massive roadblock. They don’t care much for the public interest. They care for the money-making opportunity. And since Facebook may find it hard to skirt adverse public opinion in the future, it’s likely some of them are losing faith in the stock.

Until next time...

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