Zuckerberg Announces Major Facebook Changes, Investors Click On ‘Sad’

Written by Dana Sanchez

Facebook CEO Mark Zuckerberg said he’s making major changes to the social network, prioritizing posts from family and friends over news stories and content from businesses — a transition that will probably mean people spend less time on the site.

The news rattled Wall Street, and Facebook (FB) stock sank more than 4 percent on Friday, its worst day in more than a year.

But Wall Street analysts aren’t too worried, despite the stock’s decline. “We see this as the right long-term decision for the platform and, over the near-term, doubt that this will have a material impact on revenue,” one analyst wrote.

Community feedback has shown that public content has been “crowding out the personal moments that lead us to connect more with each other,” Zuckerberg said Thursday in a blog post. His product teams have a goal of helping Facebook’s 2 billion-plus monthly users find content that will lead to more meaningful social interactions, he said.

“By making these changes, I expect the time people spend on Facebook and some measures of engagement will go down,” Zuckerberg wrote. “But I also expect the time you do spend on Facebook will be more valuable. And if we do the right thing, I believe that will be good for our community and our business over the long term too.”

Facebook usage was already falling prior to Zuckerberg’s announcement, said Brian Wieser, an analyst at Pivotal Research Group who tracks Nielsen data. The decline was slight, but Wieser said Facebook may actually address the root of that decline by cracking down on concerns such as fake news, according to CNBC.

Last week, Zuckerberg said his resolution for 2018 was to “fix” the social network he co-founded, Bloomberg reported. His vow followed a year that saw Facebook come under sharp criticism for contributing to a climate of extreme political polarization, the distribution of fake news and escalating privacy concerns. Last year, lawmakers berated Facebook, Alphabet Inc.’s Google and Twitter Inc. for failing to prevent Russian manipulation on their platforms during the 2016 U.S. presidential election.

Video ads and corporate posts account for 85 percent of Facebook’s revenue. Investors are worried that the changes will make it harder for advertisers to reach Facebook’s 2 billion monthly users, CNN reported.

Analysts agree the company’s sales will take a short-term hit from the changes. “This clearly sounds negative for 2018 revenue growth at first glance,” Barclays analyst Ross Sandler wrote in a research note.

Shares will decline until there’s more clarity on the impact of the changes, said Scott Devitt, a  Stifel analyst.

The changes aren’t a total surprise, Bloomberg reported. Facebook has been shifting the content on its news feed away from brands and publications toward posts from friends and family and for more than a year. Now Facebook’s algorithm will prioritize posts that spark back-and-forth discussion or inspire people to share and react. That means posts like a friend asking for advice, recommendations for a trip or an article that prompts interaction, according to Adam Mosseri, Facebook’s head of news feed.

Founded in 2004, Facebook began as an online bulletin board for college students that experienced explosive growth. Initially, the news feed was a scrolling update about the personal activities of friends and family members. Months before the company went public in 2012, Facebook started featuring “sponsored story” ads in users’ feeds, and it rolled out mobile ads the same year. Since then, annual sales grew from $5.1 billion to about $40.2 billion in 2017. The news feed has become increasingly crowded with ads and posts from brands and publications.

Facebook changes
Mark Zuckerberg. Illustrator: Rohith Rao

 

Sign up for the Moguldom newsletter — business news you need to know about economic empowerment for the digital age, delivered to your inbox.