Why Facebook Inc (FB) Stock Could Be In The Red Today

Facebook Inc (NASDAQ:FB) has reported yet another ad-measurement error, and this time it'll cost them.

Menlo Park, California-based social media giant Facebook Inc (NASDAQ:FB) reported yet another error in its ad-measurement. And while the scope of these errors isn't as significant as some of their previous ones, this time, it'll cost them. Facebook plans to refund advertisers who were affected by this 'bug', according to a post on its blog. Facebook has in the past revealed a number of errors in its tracking and measurement metrics. And each time, these announcements caused a flutter. However, one thing that all of these errors had in common was that none of them affected billing, implying no impact on advertisers in direct monetary terms. In contrast, this announcement by the company represents the first instance of an impact, albeit a small one, directly on billings. You might not be wrong if you're expecting a lot more skepticism, and a little bit of red on the stock today.

Facebook's Latest Bug Is On Mobile Web.

Facebook apparently discovered that there was a bug in reporting related to its 'video carousel' ad format. This ad-format allows advertisers to "to showcase multiple ads in a single ad slot in Facebook's news feed." The error occurred when users clicked on video carousels to view video ads placed by advertisers. In such cases, when users clicked to expand the video carousels in size, the clicks were recorded as clicks on links to the advertiser's website or app, or any other destination site which had been chosen by the advertiser. Quoting from the post on Facebook's blog:

"The bug affected billing only for the following conditions: for the video carousel ad unit; when the advertiser chose to bid on link clicks; and only for people who were on smartphone web browsers. In these cases, instead of being billed only for link clicks (clicks to an advertiser’s selected destination), these advertisers were incorrectly billed when people clicked on the videos in the carousel to enlarge and watch them."

Luckily for Facebook, the 'bug' has surfaced on its mobile website for smartphones, and not within the Facebook app or desktop website. Most of Facebook's users either use its desktop website or its mobile app, with only a very small portion of its users visiting its mobile website. So, naturally, ads on mobile web also form a very small source of ad impressions, implying that the scope of the problem is very limited. Quoting from Facebook's official announcement, "Given that this bug related to mobile web for smartphones only, and specifically for video carousel ads that bid on link clicks, the impact from a billing perspective was 0.04% of ads impressions." Nonetheless, the social media giant intends to refund advertisers who were over-billed due to the error. And honestly, that's probably the least it can do to salvage advertisers' faith in the platform.

As we'd highlighted in the past, Facebook is not the only platform that has faced a trust deficit. Even the likes of Google have their fair share of critics. Disappointment from advertisers and skepticism could translate to a near term correction in Facebook's stock price. However, with Facebook actively moving to embrace third party verification of ad-metrics and third party measurement tools, the impact of this development is likely to be limited in the long term. Given its solid fundamentals, Facebook is one of our top stock picks from the tech sector, and our picks have beaten the NASDAQ by over 135%. Check them out. If you're the type that likes to trade on the basis of technicals, though, check out our daily trading ideas section, which highlights some technical analysis based ideas which are updated everyday.


Vikram Nagarkar Vikram Nagarkar   on Amigobulls :

Neither Amigobulls, nor any members of its staff hold positions in any of the stocks discussed in this post. The author may not be a certified/registered investment advisor, and the opinions expressed should not be treated as investment advice.

Buying and selling of securities carries the risk of monetary losses.Readers/Viewers are advised to carry out their own due diligence and consult their investment advisors before making any investment decisions.

Neither Amigobulls, nor the author have any business relationship with any of the companies covered in this post.

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