Facebook Under Pressure to Show That Users Are Sticking Around Despite Scandals

Despite a series of scandals at Facebook during the past year, users aren’t rushing for the exits.

The number of users and the amount of time they’re spending on Facebook is stabilizing and possibly even growing, according to several analysts.

“Contrary to popular belief, our data checks do not point to users and advertisers leaving in droves,” Brent Thill, an analyst at Jefferies, said in a recent note to investors.

Investors will be closely watching Facebook’s fourth quarter earnings on Jan. 30 for any sign of deterioration in its business. After years of hyper growth, the company has been buffeted by embarrassing revelations that have caused some users to rethink their use of its service and sparked a militant backlash that is pushing what’s known as the #Deletefacebook campaign.

The controversy over Facebook began in early 2018 amid revelations that British consulting firm Cambridge Analytica had harvested data from up to 87 million Facebook profiles. Cambridge then used the data to try to influence the 2016 presidential election by targeting specific voters with ads.

Last year, Facebook came under fire once again after mishandling alleged Russian attempts to spread fake news on its service. The company then suffered another black eye from reports that it had attempted to discredit Facebook critics by linking them to liberal philanthropist George Soros.

In response, Facebook’s shares steadily dropped from $217.50 in mid July to $144.47 per share at market close on Monday.

By the end of the year, some investors began calling for CEO Mark Zuckerberg to resign. For the record: He didn’t.

Despite it all, some analysts still believe Facebook will report relatively positive fourth quarter results. If so, it would be a modest victory for the company considering the pummeling to its image.

Colin Sebastian, an analyst at Baird Equity Research, said that a survey conducted by his firm shows that user engagement has leveled after declining in the immediate aftermath of the Cambridge Analytica scandal.

Baird’s survey of 1,500 U.S. users showed a slight uptick in engagement with 36.5% of respondents reporting the same or greater use compared to the prior quarter, according to the report. The survey also estimates that Facebook has 185 million North American daily active users, which is flat from the previous quarter.

Thill, the Jefferies analyst, said Facebook’s leadership in social media hasn’t changed. While the number of daily active users appears to be flat, ad sales continue to grow. And though the company was plagued with negative headlines and he expects slower revenue growth than last year, Thill believes the downward trends are in the past.

Looking ahead, research firm eMarketer predicts that the number of Facebook’s monthly users worldwide will increase 7% to 1.75 billion by the end of the year. And the company’s photo and video sharing network, Instagram, will grow its user base 13% to 804.4 million in 2019.

Facebook’s share of the $327.3 billion worldwide digital ad market is expected to grow to 20.5% by the end of the year, or $67.2 billion, according to eMarketer. For reference, Google, which is considered the market leader in digital ads, is expected to control 31.3% of the ad market in 2019, or $102.4 billion in ad revenue.

Whether or not that’s the case, we should get a clearer idea about Facebook’s health and its plans for 2019 come Wednesday.

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