How Will Changes to Facebook, Inc. (NASDAQ: FB) Newsfeed Affect Profitability?

Earlier this year, Facebook, Inc. (NASDAQ: FB) CEO and Founder Mark Zuckerberg announced that the social media giant was redesigning the Newsfeed feature on its Facebook platform. He went further to suggest that the new feature will prioritize posts from friends and family as opposed to prioritizing relevant posts, which usually resulted in Facebook users viewing a lot of sponsored content.

Article Summary

Facebook recently announced changes to its Newsfeed feature.

The move is likely to pay off over the long-term.

Facebook ads were becoming a menace, just like TV ads.

Here’s the trading report on FB.

Most analysts agree that the Newsfeed changes will affect the ad costs for most advertisers using the platform given that users would be exposed to fewer ads per session as compared to the past. It is also evident that in order for Facebook to maintain its current ad revenue, the company will have to raise ad costs per interaction or find ways of generating the lost revenue from its other social media platforms.

Although Mark Zuckerberg anticipates that people will spend less time on Facebook, he believes that the time people spend on the platform will be more valuable. To put this in perspective, most users log onto their social media platforms to catch up with friends and family, while at the same time being exposed to ads based on their interests.

The time users spend on the platform is usually extended by the time they spend watching video ads. If users view less ads per session, they will definitely spend less time on the platform, but more of their time will be spent catching up with their friends and other interests, which is exactly what Mr. Zuckerberg wants.

Furthermore, the revamped Newsfeed feature is likely to pay off over the long term given the attachment that users have developed towards the site as a social networking platform. The proliferation of ads on Facebook was a welcome distraction for many users, but as the time spent watching video ads increased, it is quite possible that users would become immune to the ads.

Mark Zuckerberg has acted just in time to stop Facebook ads from being viewed as a nuisance, which is exactly what has happened to TV ads over time, where most viewers can barely tolerate many of the ads that are frequently aired.

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