Why Facebook's advertiser boycott is an opportunity to buy the stock: hedge fund manager

Facebook is seeing more and more advertisers sign on to a pledge to forgo advertising on the social media platform, but it could present a buying opportunity, according to investor and Satori Fund founder Dan Niles.

Facebook shares suffered their worst trading day since March on Friday when the stock closed down 8.3% as more brands signed a pledge that calls on companies to boycott advertising on the social media platform for the month of July until it improves on moderating user content.

While the #StopHateForProfit pledge has attracted the likes of some big-name advertisers like Starbucks, Coca-Cola and Clorox, Niles told Yahoo Finance that the impact to Facebook’s revenue (which topped $17 billion in the first quarter alone) is likely being overestimated by investors.

“If you look at it short term, the thing people need to realize is these are some big names coming out talking about pulling advertising from Facebook or other platforms, but the top 100 advertisers are less than 20% of revenues for the company,” Niles said in an interview with Yahoo Finance’s YFi PM, adding that the platform boasts 160 million business Facebook pages, only 8 million advertisers.

“The thing with the virus is with the retail locations shutdown, more and more companies are having to have an online presence. So for me, the real key is of how many of those 160 million that aren't part of the 8 million advertisers, can they get onto the platform?” he said.

Facebook CEO Mark Zuckerberg has separated himself from other tech leaders by choosing to limit how Facebook moderates posts from politicians and has defended a push to keep up posts that others see as problematic with his repeated assertion that “political speech is important." (AP Photo/Andrew Harnik, File)

For Niles, whose Satori Fund is up by a double-digit percentage in 2020, partly due to its Facebook stake, the shift for brands to create an online presence as the coronavirus pandemic continues to dent in-store opportunities is too large to ignore. Niles said that trend coupled with a new push by the company to monetize shopping experiences on Facebook and its Instagram platforms led his fund to increase its Facebook exposure Monday.

Analysts echoed the notion that the recent negative Facebook sentiment is exceeding the sales impact the company is likely to see. JPMorgan reiterated its Overweight rating Monday and noted that Facebook has dealt with pressure from advertisers before, notably in 2018 following the Cambridge Analytica scandal. Furthermore, an estimate from Bloomberg Intelligence pegged the boycott pressure to a cost of about $250 million in lost revenue compared to the $77.1 billion Wall Street expects the company to bring in this year.

Despite opening about 2% lower on Monday and trading in the red following announcements that Clorox and Adidas would be joining the growing list of advertisers spurning Facebook, the stock closed 2% higher.

Zack Guzman is the host of YFi PM as well as a senior writer and on-air reporter covering entrepreneurship, cannabis, startups, and breaking news at Yahoo Finance. Follow him on Twitter @zGuz.

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