Social media companies face revenue hit from boycotts

More companies are giving a “thumbs up” to the growing boycott that aims to hit social media companies where it hurts the most: advertising revenue

Verizon’s decision to join the growing boycott against Facebook and Twitter risks hurting the social media giants where it hurts most: their advertising revenue.

Advertising accounts for nearly all Facebook‘s $70.7 billion annual revenue, and a similar share of Twitter’s $3.46 billion. Both already faced declining ad spending as big advertisers like Ford and Coca-Cola cut their budgets amid the pandemic and recession.

The #StopHateforProfit campaign launched June 17 by the Anti-Defamation League, the NAACP and other advocacy groups seeks to pressure the social media giants into doing more to curtail racist and violent content on their websites. So far, the campaign has signed on more than 200 companies and organizations.

Outdoor gear retailers Northface, REI and Patagonia were among the first companies to join the boycott. Patagonia said it made the move because the social media giant failed to take steps to stop the spread on its platform of “hateful lies and dangerous propaganda.”

But Verizon, which spent $3.07 billion on advertising in 2019, appeared to tip the scales for investors, who sent Twitter shares plunging 7.4% and Facebook shares sliding 8.4% on June 26 after it joined the boycott.

Facebook and its CEO Mark Zuckerberg have been the main targets of the boycott. But several large corporations are suspending all social media ad spending as the industry fumbles with how to maintain open platforms for expression while determining which posts contain hateful or offensive rhetoric and need to be flagged or deleted.

“We’re pausing our advertising until Facebook can create an acceptable solution that makes us comfortable,” New York-based Verizon said in a statement.

Coca-Cola and Starbucks are among the other consumer products titans to halt all their social media advertising. Large companies are protective of their reputations, and social media already presented them a delicate balancing act of exposure versus risk.

“We’re kind of going back to a much earlier mindset where advertisers seem that they are not comfortable advertising with user-generated content where they don’t have greater control over things that are said,” said Nicole Perrin, principal analyst at eMarketer.

Facebook and others have faced criticism for years for their hands-off approach to content. Facebook’s own employees publicly criticized Zuckerberg for leaving up posts by President Donald Trump that suggested police-brutality protesters in Minneapolis could be shot.

Facebook has faced criticism in the past over some of its practices, including the Cambridge Analytica data harvesting scandal, and its stock is normally resilient. Analysts expect the company to weather this controversy too, especially if the boycott is short-lived.

Perrin said the boycotts might not have much a financial impact for Facebook, considering its more than 8 million advertisers. Many of those advertisers are small operations that need social media exposure. The boycott movement could lead to large brands drastically scaling back their spending, however, or quitting social media companies completely.

Between the boycott and the pandemic, investors have a nearly impossible job trying to forecast Facebook and Twitter’s finances this year.

“We’re doing this in the middle of a pandemic where advertisers of all sorts are pulling back spending and cutting back costs where they can,” Perrin said. “We’ll never know how much of Facebook’s third-quarter results are due to the boycott or due to the pandemic.”