As Facebook unfriends Australia, is it damaging its investment case?

Is Facebook a wise investment? Big tech is facing regulatory challenges ahead and as ubiquitous as the NASDAQ company is, can it maintain its foothold?

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Facebook (NASDAQ:FB) caused a global outcry last week when it blocked all news feeds into its platform throughout Australia. The social media network is currently in a battle of wills with the Australian government. This is because the government wants to introduce a law that will make Big Tech pay for its news content. This includes Facebook and Alphabet‘s Google.

When Facebook blocked the news sites, it inadvertently blocked pages belonging to emergency services, charities, welfare groups and health departments. This may have caused serious brand damage and affected its future investment case.

Amid the pandemic, Australia is also dealing with wildfire season, so a steady stream of accurate news is vital to its citizens. Right or wrong, the news blackout has shocked the system and surely only added to the likelihood Facebook will face closer scrutiny and regulation.

Q4 financial situation

In its recent trading update for Q4, Facebook beat analysts’ expectations for both its total revenues and advertising revenues. These led to a 44% better operating income, but Q4 saw a 25% rise in costs and expenses.

The pandemic has been kind to Facebook’s bottom line because it’s brought increased attention from all those consumers stuck at home. However, as the world gradually returns to normal, revenues are expected to reduce.

Facebook is also up against various ad targeting and regulatory challenges from several international jurisdictions. It also stated that it expects Apple‘s iOS 14 update could hurt its advertising business going forward.

Should I invest in Facebook?

There are many facets to Facebook, and it’s now hard to imagine a world in which it doesn’t exist. Advertising on Facebook is easy and instant. And advertisers can measure their returns much more quickly than in traditional TV, print, and billboard campaigns. Small businesses rely on it as a place to market and conduct much of their trade. This gives it an edge, but the tech space is competitive and it’s not a certainty that Facebook can maintain its monopoly. Many younger people prefer TikTok, Snapchat and other social channels.

Then again, Facebook also owns Instagram and WhatsApp, so it’s infiltrating lives to a much greater extent than people realise. This means it also has much more consumer data at its fingertips than we’re aware of. It gives Facebook an advantage when it comes to advertising, but it’s also in the crosshairs of global governments with concerns over its extreme access to consumer data.

And this all comes at considerable cost. While these services appear free to the end user, they cost Facebook a fortune in maintaining its networks and data centres. There’s no getting away from this. Facebook is going to have to heavily invest in security and reliable infrastructure if it’s going to keep users happy and meet regulatory changes.

I’m not a fan of Facebook’s practices and wonder if it’s got too big for its boots with this latest move. Its share price has been on an upward trajectory for the past decade, but can that continue? I think with so many regulatory and political challenges ahead, it could suffer. And it doesn’t offer a dividend to add value to a long-term portfolio. I think there are better US stocks available and I’m not tempted to invest in Facebook shares today.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. 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. Kirsteen has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Alphabet (A shares), Alphabet (C shares), Apple, and Facebook. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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