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Why Facebook Stock Just Dropped 6.5%

What happened

Facebook (NASDAQ: FB) stock took a hit in Friday trading, falling 6.5% through 12:10 p.m. EDT, in the wake of an announcement from Verizon (NYSE: VZ) last night that it is "pausing" purchase of online ads from Facebook and its wholly owned Instagram subsidiary.

So what

On Thursday, the Anti-Defamation League published an open letter criticizing Verizon for the presence of one of its ads found on Facebook "next to a video from the conspiracy group QAnon drawing on hateful and antisemitic rhetoric."

Image source: Getty Images.

Just hours later, after close of trading on the Nasdaq, Verizon announced that it is pulling its ads until Facebook "can create an acceptable solution that makes us comfortable" and ensure that Verizon's ads won't appear on the same page alongside posts that Verizon customers might find objectionable.

Now what

How big of a deal is this for Facebook? Advertising analytics company Pathmatics estimates that Verizon spends about $1.9 million or so, combined, on Facebook and Instagram ads monthly -- call it $23 million a year. That's kind of a drop in the bucket of this blue chip tech stock's $73.4 billion annual revenue stream, but it's not nothing.

Still, the real worry will be if Verizon's high-profile pause causes even more advertisers to boycott Facebook, such that the revenue losses snowball. There's a limit to how far this can go, as companies that drop advertising will necessarily lose exposure relative to companies that continue to buy ads on Facebook.

In the end, I suspect this is going to be a kind of tempest in a teapot that won't damage Facebook's business in the long run -- but I have to admit that the headlines look kind of bad right now, and I can hardly blame Facebook shareholders for feeling nervous today.

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Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool's board of directors. Rich Smith has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Facebook. The Motley Fool recommends Verizon Communications. The Motley Fool has a disclosure policy.


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