Next Worry for Facebook: Disenchanted Users

Facebook Inc.’s FB -2.66% handling of user data has upset lawmakers and regulators in multiple countries. But the biggest risk to its business could come from angry users.

Throughout previous controversies in recent years, Facebook’s user population climbed steadily, fortifying the basis for an ever-growing gusher of advertising revenue.

Now Facebook is contending with a groundswell of users—some of whom are tweeting under the hashtag #DeleteFacebook—who claim to be abandoning the social-media giant, prompting some analysts to warn that its growth juggernaut could sputter.

“The biggest issue we see for Facebook is if the DeleteFacebook leads to user attrition and eventually ad dollars allocated elsewhere,” Barclays analysts said in a research note Tuesday. The public backlash also could impinge on Facebook’s ability to recruit talented engineers, they said.

Facebook’s crisis escalated Thursday as members of the U.S. House Energy and Commerce Committee called on Chief Executive Mark Zuckerberg to testify.

“After committee staff received a briefing yesterday from Facebook officials, we felt that many questions were left unanswered,” Rep. Greg Walden (R. Ore.), chairman of the committee, and Rep. Frank Pallone, Jr. (D., N.J.) said in a prepared statement. “We believe, as CEO of Facebook, he is the right witness to provide answers to the American people.”

Late Wednesday, financial-services firm Stifel slashed its target price for Facebook shares to $168 from $195, saying, “Facebook’s current plight reminds us of eBay in 2004—an unstructured content business built on trust that lost that trust prior to implementing policies to add structure and process.”

The latest crisis began late Friday when Facebook said it was looking into reports that analytics firm Cambridge Analytica , which worked with the Donald Trump campaign in 2016, improperly accessed data from its platform on tens of millions of users, and then retained it even after having agreed to delete it. Cambridge Analytica said it followed Facebook policies.

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The controversy knocked a total of 9%, or $50 billion, off Facebook’s market value Monday and Tuesday, before shares rebounded 0.7% on Wednesday. The stock lost another 2.7% to close at $164.89 on Thursday. Facebook is facing legislative inquiries on two continents and an investigation by the Federal Trade Commission.

Mr. Zuckerberg broke his silence on the issue Wednesday, admitting mistakes and pledging an investigation and improvements to user-data policies. “We have a responsibility to protect your data, and if we can’t, then we don’t deserve to serve you,” Mr. Zuckerberg wrote in a Facebook post.

On Thursday, Facebook operating chief Sheryl Sandberg addressed criticism that company leaders are too slow to respond to crises. “Sometimes, and I would say certainly this past week, we speak too slowly,” she said on CNBC. “If I could live this past week again, I would definitely have had Mark and myself out speaking earlier.”

Facebook “definitely didn’t realize the gravity of this issue sooner,” Ms. Sandberg said.

The fierce criticism of Facebook could ease. For now, its founder’s reassurances aren’t enough for some users already put off by Facebook’s handling of Russian interference on the platform around the 2016 U.S. election.

Sabine Stanley, a 42-year-old professor at Johns Hopkins University, says she had been thinking about deleting her Facebook account for months as the company battled one crisis after another, and the revelation about Cambridge Analytica and Facebook’s slow response pushed her over the edge.

“You combine that with the election scandal, and I decided I couldn’t support Facebook anymore,” says Ms. Stanley, who also deleted her account on Facebook’s Instagram app.

A Facebook spokeswoman declined to comment.

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The number of people world-wide who use Facebook at least once a month has more than doubled since it went public in 2012, hitting 2.13 billion in last year’s final quarter. Revenue and profit have grown even faster, thanks to Facebook’s use of its wealth of data to help advertisers target their messages to those users.

Warning signs began appearing last year, as anger rose in the U.S. over Facebook’s lax controls over misinformation and abuse on its platform tied to the 2016 election. Facebook’s U.S. users spent 7% less time on the site in August compared with a year earlier and 4.7% less time in September, according an analysis of Nielsen data done by Pivotal Research Group.

Last month, Facebook said its users collectively spent 5% less time on the platform a day in the last three months of 2017, translating to a little more than two minutes per day, per user.

The company also said it experienced its first-ever quarter-to-quarter drop in the number of people who log in daily in its most lucrative market, the U.S. and Canada, where Facebook lost about 700,000 daily users out of 184 million overall. Facebook said the decline was a blip and that the figure was likely to fluctuate.

Analysts are less sanguine in light of recent events. Brian Weiser, an analyst with New York-based Pivotal Research, says he expects the Cambridge Analytica issue to reduce the amount of time users spend on Facebook by 10% to 15%.

“The biggest, most concerning thing here is the scale of this problem,” Mr. Weiser says. “All the operational failures indicate a real management problem.”

Gabrielle Estres, a 34-year-old industrial adviser in London, deleted her Facebook account this week after the recent data issues at the company, but said even before that she had been using it less.

“It was this supercool thing and now at this point it’s more the thing that always reminds me of birthdays,” she said. “The threshold of deleting your account is not that high anymore.”

Other users are more circumspect: “#DeleteFacebook isn’t the answer,” one Facebook user said on Twitter. “You just have to be smart when you use them.”

So far, there’s little indication that advertisers will change their view of Facebook because of the latest furor—though some prominent executives have criticized the firm in recent months. Investors will get their next glimpse of Facebook’s performance with its first-quarter report more than a month from now.

“If time goes on and it appears they still seem disconnected from how users feel, then they might have a problem,” says Colin Sebastian, a senior research analyst at Robert W. Baird & Co. in San Francisco. “We can see now they’re in crisis management mode, which is a good thing.”

—Deepa Seetharaman contributed to this article.

Write to Kirsten Grind at kirsten.grind@wsj.com

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