Should We Trade Facebook Stock On The Dip?
Facebook (FB Stock Report) will be confronted with its largest-ever advertiser boycott in July. That’s a huge potential blow to the largest social media company in the world. As if the hit to its ad sales wasn’t enough during the novel coronavirus, this presents a new revenue risk. The FB stock took a hit on Friday trading, plunging 8.3%. This came after an announcement from Verizon (VZ Stock Report) on Thursday said it is “pausing” its online ads on Facebook and Instagram.
So, what happened? The Anti-Defamation League pulled the trigger after it published an open letter criticizing Verizon for the presence of one of its ads on Facebook “next to a video from the conspiracy group QAnon drawing on hateful and antisemitic thetoric”
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The real worry was that Verizon’s high-profile boycott would cause even more advertisers to boycott Facebook. The news is spreading over the weekend like wildfire. Understandably, this is making FB stock investors uneasy. We know that such headlines could lead to a decline in the company’s revenue. Facebook’s effort to stem a growing client boycott by introducing new policies failed over the weekend, with big brands including Starbucks and Levi’s pulling spending. This makes FB stock one the top tech stocks to watch this week.
What’s more to come? Dozens of brands including Unilever and Coca-Cola (KO stock report) are canceling advertising for between a month and six months heading into July. This shows that the effort to stop the boycott by Facebook has so far failed to gain traction.
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How Should We Look At FB Stock In The Near-Term?
It will be an interesting week for Facebook, with short-term volatility for FB stock almost a sure thing. I guess it’s safe to assume that the stock will take a temporary hit after recent events. The FB stock reached its all-time highs of $242 per share before sliding to $216 on Friday. The prior high at $225 will act as a springboard for the stock, as Facebook gapped over this mark, then held it as support. The $240 will be the resistance going upwards.
There are of course different views on Facebook stock right now. Of course, for the bulls, they will see it as one of the short-term hurdles and the company’s digital advertising market would have little problem moving forward. That’s because the coronavirus-related acceleration in the growth of e-commerce and online entertainment should fuel demand for digital advertising. And that could lead to a potential higher Facebook’s ad sales over the long run. Besides, the boycotters may only represent a small group of Facebook customers.
On the other hand, for the bears, this is an excellent opportunity for them to short the stock amid the huge PR crisis. With the potential snowball effect from the ad revenue losses from one company after another, could we see FB stock fall below $200 in the near-term?
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Given the amount of pressure undermining the company’s business and FB stock price, Facebook needs to address this issue quickly. It needs to be effective in order to stop advertising exits from potentially spiraling out of control. Now, what the negative news would do temporarily is to put a pressure on the stock price. But the truth is, no matter what, with so many active users, Facebook still remains one of the best places for advertising. Facebook is still in a great position to enjoy the ongoing acceleration of e-commerce business. Recent partnerships and updates could enhance user experiences. That said, despite the recent setbacks, FB stock is still one of the best tech stocks to watch in 2020.