Given Facebook's Woes, Should You Sell FB Stock And Buy GOOGL Stock?
Life seems to be getting tougher by the day for California-based Facebook Inc (NASDAQ:FB). According to a recent report, politicians in Germany are now calling for stricter action to tackle fake news, suggesting that Facebook be slapped with hefty fines for every fake news item. Even as that storm rages on, on Friday, the social media giant reported a measurement issue for the fourth time in as many months, undercounting traffic on Instant Articles this time around.
A slew of recent reports suggest that advertisers, who are growing more wary of Facebook, could potentially take their ad budgets elsewhere, like Google, for instance. So should you sell FB stock and buy GOOGL stock? The issue at hand is much more complicated than it seems, demanding a deeper look before you take any decisions on where you put your money.
Does Everybody Trust Google?
This Bloomberg report is just one of the many recent reports which suggest that advertisers could take their ad Dollars elsewhere, or bargain hard to bring down ad prices on Facebook. With advertisers growing more wary of Facebook, it won't come as a surprise if Alphabet Inc's (NASDAQ:GOOGL) Google, with its massive reach and scale, emerges as a natural alternative for advertisers. However, a deeper look suggests that even Google might not have as much of a squeaky clean image as many believe it does. Quoting from the same Bloomberg post:
"Ad buyers said these types of measurement errors existed before, including with Google's YouTube. But Facebook has opted -- or been pressured into -- disclosing them."
If you dig a little deeper, you will probably unearth some more evidence to suggest that Google's track record hasn't been error free either, like this piece of news:
"AdWords advertisers have won their appeal of a ruling that denied them class-action status in their suit against Google over ads appearing on error pages and parked domains."
Clearly, the problem goes beyond Facebook, and today, the need for third party measurement in digital advertising, is probably greater than ever before, which brings us to the next important question. (Also Read: Could Facebook's Growth Slow More Than Anticipated?)
Does Everybody Trust These Third Parties?
You might have guessed the answer - it's a plain and simple 'no'. While everybody agrees that third party measurement tools are good for the industry at large, the problem lies in identifying these unanimously accepted 'third parties'. Facebook recently listed down some big names, which will help the social media giant with third party verification. One of those names is comScore, and a recent report by CNBC highlights some facts that are worth taking note of:
"agencies and brands use numbers published by comScore to determine which companies are getting the most eyeballs to determine their advertising budgets. A drastic drop in traffic for a couple of months could potentially mean that they decide to move their money elsewhere.
Some outlets had issues with comScore numbers, saying that the company has reported bad numbers in the past. One publisher disputed the company's numbers because they don't take into account other kinds content, including Facebook video views which are a growing area of interest for consumers."
The post, titled "It's not just Facebook: Publishers say internet metrics are often wrong", brings to light what is possibly the important facet of the digital advertising industry at the moment - there's probably no platform or body which advertisers trust 100%. While the role of third party measurement and verification is indisputably important, what's probably more important is a better, more defined framework, many more guidelines, and well thought out rules. And that's precisely what Mark Bergen has to say in his post on Bloomberg.
"Facebook's partners and competitors see its disclosures as further proof that additional parties are needed for these audits and uniform rules for how ads are counted, bought and sold across the web."
But there's more to this. Simply putting in place 'unanimously accepted' third party verification may not solve the problem for big platforms like Facebook and Google. Like we've highlighted in earlier articles, a good number of advertisers on these platforms are small businesses, who can't afford the luxury of third party measurement tools. And as Motley Fool's Adam Levy puts it, specifically with respect to Facebook, "While none of them individually spend a lot of money on Facebook ads, don't underestimate the aggregate value of the long tail of small advertisers to Facebook."
Platforms like Google and Facebook might have to put advertisers first and absorb any costs involved in making these tools available, or at least viewable, to advertisers. After all, it is the ad platform which needs these metrics, to establish and protect its credibility, so that advertisers bring their ad-Dollars. (Also See: Could Instagram Power Facebook's Next Growth Cycle?)
Summing It Up
All of this put together suggests that the problem is not with Facebook alone. The unreliable nature of online advertising metrics and numbers is an industry-wide problem. Like we highlighted earlier in the post, there's probably no platform or body which advertisers trust 100%, suggesting that a complete, industry-wide overhaul may be called for, to bring better defined rules for how ads are measured, bought and sold across the internet.
Coming back to the question we started with, should you sell FB stock and buy GOOGL stock? The recent turn of events is likely to favor Google. There are several reports which suggest that ad-prices, if not spends themselves, could come under pressure on Facebook. With each passing day, the risk that Facebook's growth could slow more than anticipated is increasingly becoming a very real one. In the near term, it might be prudent to allocate more investment Dollars to GOOGL stock, over FB stock.
However, we don't think you should exit your FB position completely. As we've highlighted in this post, it seems very likely that there will be a widespread consolidation of the industry as a whole, which will provide investors with opportunities to buy into these stocks again, possibly at lower prices. The future is digital, and there's no going back from this evolution. Being at the forefront of this transition, both Google and Facebook are well placed to gain in the long term.
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