- Facebook has made changes to its newsfeed, which has resulted in conflict between major media.
- The continued emphasis on curated content for users improves engagement, which will eventually result in more user generated content.
- Facebook’s growth trajectory is solidly intact based on key performance indicators.
Facebook (NASDAQ:FB) has changed its newsfeed algorithm, which has had various repercussions to the website. To quickly summarize what has happened to the newsfeed, Facebook made the change so that users can only see content that they are actively interested in. This change makes it much easier for users to filter out noise, as users want to consume content pertaining to weddings, birthdays, Instagram pictures, and etc.
The change in the timeline has resulted in Facebook pages becoming drastically less effective, and negative news media coverage to be “less clicked on.” The Washington Post goes into great depth.
Quoted from The Washington Post:
For University of North Carolina sociologist Zeynep Tufekci, this sort of “algorithmic filtering” is more than a matter of technical differences. Last Wednesday, when there was rioting in Ferguson and journalists were being arrested, the events in Ferguson unfolded in real time on her Twitter feed. But on Facebook, where she follows a similar composition of friends, posts about Ferguson didn’t appear in her feed until the next morning. “Would Ferguson be buried in algorithmic censorship?” she wrote on Medium.
However, Facebook users generally don’t read news, much less, negative news. So when there’s major news events that causes Twitter to explode, Facebook makes cricket sounds. The picture below succinctly shows the type of content people on Facebook want to read.
The above status message was shared by 2,326 people, and it basically states “don’t share negative status messages.” So maybe, Facebook’s strategy appeals to its users, but it just doesn’t appeal to the mainstream media. Also, Facebook is not restricting anyone from posting links on their timeline, even if they’re links to negative news events. So it’s not actually restricting people from freedom of speech, what they’re doing is providing information they actually want to read.
Facebook Average revenue per user
Clearly, Facebook’s adjustments to the newsfeed are working. It’s working, because active engagement paired with monetization metrics per user have trended higher over the past year. The continued improvement on operations, paired with accretive acquisitions has made Facebook one of the best performing investments, and a top holding amongst hedge funds.
Facebook Daily Active Users as a Percentage of Monthly Active users
Daily active users as a percentage of monthly active users have continued to trend higher over the past two fiscal years. The consistent conversion of somewhat active, to frequently active users is a solid trend that reinforces the investment thesis in Facebook. However, the transition of MAUs to DAUs wasn’t purely organic; the strategic implications of making a better newsfeed, paired with unbundling of certain applications drove that consistent gain in daily active users. Also, by having more active users, the content in the newsfeed improves, and that in turn is what drives the “stickiness” of Facebook’s social platform. That gain in engagement transition into more opportunities to monetize, as the number of ads displayed will gradually increase as the feed is populated with more relevant content.
Going forward, Facebook will remain one of the most compelling investment opportunities as it does trade at a fairly reasonable valuation when compared to peers. Strategically, the management team excels at execution when compared to other media properties, and has been shareholder friendly, for the most part.