NEW YORK: The state of moral leadership at Facebook, again thrown into question by a New York Times story this month, could erode trust among its business partners, distract its executives, and make recruiting difficult, said analyst Brian Wieser.
The November 14 story revealed Facebook’s efforts to deflect public criticism, including a campaign to discredit activist protesters by linking them to liberal financier George Soros. The company posted a lengthy rebuttal to the Times’ story in a Facebook Newsroom blog post.
The latest news, Pivotal Research’s Wieser said, did not prompt him or his company to "alter tangible financial expectations" for Facebook. However, the revelations could have other implications for the social media giant. Customers sometimes pressure marketers to avoid associating with certain media outlets, Wieser said, and advertisers often deal with that pressure on a case-by-case basis, assessing how the association could affect sales.
"However, risks from immoral behavior at a corporate level are greater because they create the possibility that a brand could be tarnished by association with the media owner in the future and because it reduces the trust that must exist between different parties in order to manage commercial relationships," he said.
Wieser said it’s likely Facebook will receive more negative press in the next few month and possibly face additional congressional hearings. While that may not immediately alter the decisions of advertisers, it will have a generally corrosive effect.
"Marketers might not cut spending directly, but scrutiny of budgets on Facebook will increase, as will the time Facebook executives will spend explaining themselves the next time something goes wrong," Wieser said. "Attracting and retaining talent to work at Facebook, who will decide for themselves whether or not morality matters and whether it matters enough at Facebook will be yet another intangible factor for investors to consider."
Pivotal is not changing its immediate outlook for Facebook, but Wieser cautioned the recent news "does enhance risks related to revenue and expense trends as well as the potential for managerial changes." Pivotal is maintaining its sell rating for Facebook with a $125 price target.
Facebook’s revenue was up 33% in Q3 to $13.7 billion year-over-year, missing analysts’ expectations. Daily active users was were up by 9% year-over-year to 1.49 billion.