Facebook Inc (FB) Stock Slips As Investors Mull Impact From Inflated Video Metrics

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Facebook Inc (NASDAQ:FB) stock dipped in Friday following the news that the social network has been inflating the metrics for its video ads for the last two years. The shares only declined a little, however, as this Wall Street darling is practically untouchable. Indeed, Facebook Inc (NASDAQ:FB) stock hasn’t been greatly impacted by positive news lately either, as the shares didn’t move much following a recent price target increase.

What impact will the error have on Facebook stock?

Facebook Inc (NASDAQ:FB) insists that no advertisers were overcharged as a result of the mistake. The social network said that for the last two years, it greatly overestimated the average viewing time a video receives on its platform. It only counted videos that were viewed for more than three seconds, which resulted in a significant exaggeration of the amount of time video ads were being watched.

The social network made the revelation on its Advertiser Help Center Page a few weeks ago, but until The Wall Street Journal picked up on, the error (to say the least) did not receive much attention. Ad agency Publicis Media pegs the overestimation of viewing time at 60% to 80%.

While Facebook Inc (NASDAQ:FB) is painting the problem as if no harm has been done because advertisers were not overcharged, there is a significant problem here. Advertisers use this metric when determining how much of their ad budgets to direct to each platform or outlet they use. Metrics such as the one Facebook Inc (NASDAQ:FB) inflated are the reason advertisers are starting to shun Twitter and favor Facebook Inc (NASDAQ:FB).

Advertisers are willing to pay more when they see that their investment is bringing results, but the “results” are being artificially inflated, then their return on investment might not be as high as they thought it was. So while advertisers might not have technically been overcharged, they may feel as if they overpaid for something that was advertised as being better than it actually was.

Facebook stock coverage initiated at Buy

Speaking of advertisers’ return on investment on Facebook Inc (NASDAQ:FB), one analyst had high praise for the social network, calling it the “one of the most effective advertising platforms available.” In a report dated September 22, Loop Capital Markets analyst Blake Harper initiated coverage of Facebook Inc (NASDAQ:FB) stock with a Buy rating and $165 price target. He expects the social network to continue taking share within the global ad market, which is worth $800 billion.

He noted that Facebook Inc (NASDAQ:FB) holds a lot of personal user data, which he believes enables “unprecedented ad targeting” on a massive scale. Like the rest of Wall Street, he also likes the monetization potential that exists in Messenger, WhatsApp and Instagram. Further, he likes the social network’s investments in virtual reality and artificial intelligence, which he sees as long-term investments. All of his comments were pretty standard in terms of what we typically see when analysts talk about the social network.

Insiders selling off Facebook stock

Shares of Facebook Inc (NASDAQ:FB) stock slipped by as much as 1.85% to $127.68 during regular trading hours on Friday. Despite this, the shares are still up by more than 20% year to date. Insiders have been unloading quite a lot of Facebook Inc (NASDAQ:FB) stock over the last month or so, with CEO Mark Zuckerberg being among the sellers.

Just this week, more filings from WhatsApp cofounder Jan Koum, Chief Operating Officer Sheryl Sandberg, and General Counsel Colin Stretch revealed that they had sold some shares. The last transaction date for Zuckerberg was September 9. Sandberg exercised some of her stock options and then sold some shares but still directly holds nearly 4.2 million shares of Facebook Inc (NASDAQ:FB) stock after all of her transactions. Koum dumped nearly 1 million shares of Facebook Inc (NASDAQ:FB) stock this week, raking in about $125 million in the process.

Of course share sales by insiders do not necessarily mean anything bad, particularly for a company like Facebook Inc (NASDAQ:FB). In this case, they’re probably just turning some paper profits into cash as the stock hovers just below its all-time high of $131.98, set within the last year. In Zuckerberg’s case, he regularly unloads shares for charitable purposes.

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