Could the Fake Russian Ads Scandal Hurt Facebook’s Growth?

Facebook Inc (NASDAQ:FB) has come under scrutiny recently with Russian-bought ads during the U.S. election that promoted fake news, calling into question the social media’s site reliability for accurate information. The company makes a lot of money from ads and it has seen tremendous growth with revenues of $27 billion in 2016 increasing 54% from the previous year and growing a total of 250% since 2013. In its most recent quarter sales were still up 45% year-over-year.

However, with the negative attention of having Russian-paid ads on its site spreading misinformation, Facebook will certainly spend more time and resources on preventing this from happening in the future, which could cost the company sales and profits along the way as it puts stronger controls in place.

The negative press has not hurt Facebook’s stock as the company’s share price continues to ascend with the share price rising 13% in the past three months. Although Facebook appears to have done nothing wrong, the scandal could undervalue ads placed on the social media site if advertisers consider the site to be less credible given the association with fake news.

We won’t see the impact of that and whether growth has actually slowed down until future quarters. Facebook is undoubtedly a popular channel for marketers to reach many people at a low cost, but if advertising dollars can be better spent elsewhere, a decline in growth might be inevitable. It is still early into the investigation and we may see more of an impact on the share price as we get more details, depending of course on how negatively they reflect on Facebook.