Facebook’s [FB] share price gained over 2% on Tuesday after it reversed its ban on news pages in Australia.
Last week, the tech giant blocked Australian users from seeing news on the platform amidst disagreements regarding the payment of media outlets and publishers. This led to an international outcry and no end of negative publicity for the company, with Facebook's share price dipping 4.1% since 18 February.
In a volte-face, it has since emerged that Facebook has reached a compromise with the Australian authorities in what is being seen as a test case for Big Tech.
So, what has happened and what does it mean for investors?
What’s happening with Facebook?
An enquiry led by the Australian Competition and Consumer Commission found a disparity between tech firms and traditional media outlets.
This all comes down to advertising, with news outlets not receiving any ad revenue from their content posted on social media sites. Facebook argues that the benefit for news outlets is driving traffic to their sites.
A draft law would mandate that tech companies would have to pay news publishers directly for content posted on their sites, something Facebook opposes:
“The proposed law fundamentally misunderstands the relationship between our platform and publishers who use it to share news content.
“It has left us facing a stark choice: attempt to comply with a law that ignores the realities of this relationship or stop allowing news content on our services in Australia. With a heavy heart, we are choosing the latter,” Facebook said in a statement last week.
“It has left us facing a stark choice: attempt to comply with a law that ignores the realities of this relationship or stop allowing news content on our services in Australia. With a heavy heart, we are choosing the latter” - statement from Facebook
Facebook blocked Australian people and news providers from posting content on the site. Australian news publishers were also blocked from posting on Facebook's global sites.
What was the response to the ban?
In response to the ban, Australian Prime Minister Scott Morrison posted on Facebook:
“These actions will only confirm the concerns that an increasing number of countries are expressing about the behaviour of Big Tech companies who think they are bigger than governments and that the rules should not apply to them.”
Health experts have criticised the timing, saying that it hinders access to vital information about COVID-19. There has also been criticism that it could lead to the rise of disinformation on the site.
“These actions will only confirm the concerns that an increasing number of countries are expressing about the behaviour of Big Tech companies who think they are bigger than governments and that the rules should not apply to them” - Australian Prime Minister Scott Morrison
Paul Fletcher, Australia’s communications minister, said that the country will be making a point that information shown on Facebook does not come from news organisations with a "fact-checking capability with paid journalists".
Google [GOOGL], on the other hand, had struck a deal with Rupert Murdoch's News International hours before Facebook's ban came into effect.
What’s happening now?
On Tuesday, reports emerged that Facebook and the Australian government had reached a compromise. Australian authorities will include amendments to the proposed law that mean Facebook will be exempt if it can prove it has made a significant contribution to local journalism.
There will also be a two-month arbitration period to provide time to strike deals with news providers. Australian Treasurer Josh Frydenberg told reporters on Tuesday that "Facebook has re-friended Australia."
Why should investors care?
Facebook's share price has form blowing off bad news stories, but the furore over Facebook’s actions in Australia was unprecedented.
One question is how much cutting news out of people's news feeds costs Facebook's advertising revenue. A 2019 Ofcom report found that half of people in the UK got their news from social media sites. Facebook was the third top source of news stories with a 35% share, behind the BBC (58%) and ITV (40%). In the fourth quarter, advertising revenue came in at circa $27bn, a 31% increase on the previous year's $20bn. Removing news content could have potentially led to a drop in usage and ad revenue.
That said, and despite the continuous negative news flow around the company, Facebook is fundamentally a strong performer. For the current quarter, Wall Street is predicting it will post earnings of $2.36 a share, up from the $1.71 seen in the same period last year. Revenue is expected to come in at $23.49bn — a 32.5% increase on last year.
Facebook's expected revenue - a 32.5% YoY increase
Among the analysts tracking the stock on Yahoo Finance, Facebook's share price has a $338.42 average price target — hitting this would see a 33% upside on the current price.
For now, the ‘what if’ seems to have been averted, although the UK, Canada and EU are looking at putting similar laws in place. It will be interesting to see which lessons they take from Australia's dealings with Facebook over the issue.