Is Facebook (FB) Finally Going to Die?

“This time is different” — If you ever catch yourself saying those words in the stock market, double-check your analysis – because, very often, this time is not different. This is exactly why Facebook (NASDAQ:FB) stock has fared so well in the face of what seems like a confluence of business-ending sociopolitical headwinds over the past few weeks.

Long story short, Facebook has come under intense pressure in recent weeks over how the company’s social media platforms impact the mental health of young folks, and how the company has dealt with such issues in the past. Ostensibly, these issues appear like an existential crisis for the social media company. After all, you’re having media outlets and users calling for Facebook to be shut down.

Yet, in the face of these enormous headwinds, Facebook stock has displayed surprising resilience.

Sure, the stock is down 12% over the past month. But that’s not much worse than its Big Tech peers – Apple is down 7% and Amazon is down 6% over the same stretch – and ultimately, it’s a “nothing move” when you consider Facebook stock is still up 20% in 2021 alone.

Why the resilience?

Because Facebook has been here before, and investors are betting that this time is not different.

Remember the Cambridge Analytica scandal back in 2018? That’s when Facebook got slammed for leaking data on a ton of users, knowing about it, and not doing anything to fix the issue.

Mark Zuckerberg found himself on Capitol Hill. Politicians were slamming the company. Media outlets were calling for its shutdown. Advertisers were pulling their budgets. And the stock plunged.

Sound almost identical to what is happening today? It is.

But users didn’t care about the Cambridge Analytica scandal. They kept using Facebook and Instagram, and as Facebook’s user numbers kept going higher, advertisers kept pouring money into the Facebook ecosystem – and Facebook stock bounced back in a big way.

Most investors think this time around will be no different.

But it might not be…

Yes. This time may actually be different for Facebook for one very simple reason: Instagram is losing its cool.

For a moment, let’s be honest. The core Facebook app has been uncool and unpopular for a while now. Instagram has been the lifesaver for Facebook over the past few years.

With that in mind, let’s rewind back to 2018. Facebook was able to survive enormous sociopolitical headwinds because, at the time, Instagram was the coolest app on the planet. So, when these headwinds hit, most people didn’t care enough to stop using their favorite social media app.

But that’s not true anymore.

Today, the most popular social media apps are Snapchat (NYSE:SNAP) and TikTok.

According to Piper Sandler’s Fall 2021 Taking Stock with Teens survey – which surveys 10,000 teens – Snap is the most preferred social media app among U.S. teens, with 35% mindshare (up from 34% a year ago). TikTok clocked in at number 2, with 30% mindshare (up from 29% a year ago).

Instagram, meanwhile, came in third, with 22% mindshare, down pretty significantly from its 25% mindshare a year ago.

Thus, not only has Instagram ceded its place as the favorite social media app among U.S. teens, but it is also losing ground against Snap and TikTok.

The trend is not Instagram’s friend.

And it hasn’t been Facebook’s friend for a long time. Only 2% of teens cited Facebook as their favorite social media app in the survey.

So… while Facebook successfully relied on Instagram’s popularity two years ago to survive massive sociopolitical headwinds without suffering much long-term damage… that may not be true this time around.

Perhaps more to the point, we believe today’s issues will present a much bigger challenge for Facebook than the Cambridge Analytica scandal of 2018.

Does that mean Facebook is going to die? Or that Facebook stock is a sell?

No and no. Rather, we think it means that there is an opportunity for other social media platforms to steal market share from Facebook and Instagram – and for other social media socks to soar amid Facebook’s struggles.

— Luke Lango

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Source: Investor Place