In early trading action last Friday, share prices for Facebook (NASDAQ: FB) fell as much as 5.6% when the company’s CEO said it would make changes to News Feed. The priority for content will shift from business and corporate to content shared by friends. Markets think this will hurt revenue but it appears the opposite is true.
CEO Mark Zuckerberg posted that the social networking giant’s news feed will put a priority on meaningful social interactions over business or publisher posts. The market reaction heightened when JPMorgan (NYSE: JPM) reacted negatively to the change. It forecast fewer ads from businesses would hurt revenue. Yet a tighter interaction among the user base will increase the stickiness. Total time spent may fall but the overall satisfaction will increase. That would lead to users coming back more often to Facebook.
Markets incorrectly assume ad revenue from businesses will fall but Facebook may demand higher fees and rates. After all, with less ad content in the feeds, businesses must pay more for the right to compete against non-commercial (Friend) posts. In this scenario, profit margins from ads will go up. In the long-term everyone wins: advertisers get higher value from ad campaigns, users get fewer ads and Facebook ends up with a more loyal user base.
