Facebook Inc: This Could Be a Big Problem for FB Stock

Facebook StockHow Bad Is This for FB Stock?

How would Facebook Inc (NASDAQ:FB) make money without advertising? It’s an uncomfortable question at first. But when you consider that 97% of FB stock revenues are based on advertising, it becomes downright terrifying.

The social media giant relies on hawking other companies’ wares for profit, which explains why ad-blocking technology is such a threat. Many analysts believe that it is an existential crisis for Facebook stock; one that it must face head on.

On Tuesday, Facebook struck back. The company updated its software so that ads reached even those users with an ad-blocker enabled on their Facebook pages.

Put another way, Facebook found a way to bypass ad-blockers. (Source: “A New Way to Control the Ads You See on Facebook, and an Update on Ad Blocking,” Facebook Inc, August 9, 2016.)

“As we offer people more powerful controls, we’ll also begin showing ads on Facebook desktop for people who currently use ad blocking software,” the company said in a written statement.

There was an outraged response from “Adblock Plus,” a prominent ad-blocker whose technology is sourced from a wide community of developers. They alleged that Facebook had taken “a dark path against user choice,” and has vowed to fight back.

Two days later, Adblock Plus released a workaround to shut out Facebook ads once again. After taking a victory lap, they warned that Facebook could strike back at any moment.

“Facebook might ‘re-circumvent’ at any time,” Adblock Plus said in a press release. (Source: “FB reblock: ad-blocking community finds workaround to Facebook,” Adblock Plus, August 11, 2016.)

“This sort of back-and-forth battle between the open source ad-blocking community and circumventers has been going on since ad blocking was invented; so it’s very possible that Facebook will write some code that will render the filter useless — at any time,” wrote Adblock Plus.

They were right; Facebook found another way to bypass ad-blockers the very next morning. Then Adblock Plus struck back. So it went, round and round until Friday evening, when Facebook finally succeeded in banning ad-blockers from its site.

It’s entirely possible that someone will find a loophole in Facebook’s software, but the company is probably going to keep fighting this battle. It can’t afford to lose.

Here’s why.

Facebook is a toll road for all Internet content, and advertisers pay for the privilege of driving on that road because there are 1.7 billion monthly active users on the other side.

Advertisers are more than happy to pay for access to those users. But if everyone is simply blocking the ads (a barricade on the toll highway, to continue the metaphor), it wouldn’t make sense to keep paying Facebook. Hence, the existential crisis for FB stock.

Maybe the future version of Facebook stock will be more diversified than its current model, but that doesn’t mean that the company can afford to let its golden goose run free.

No advertisers, no Facebook stock. It’s just that simple.

So by forcing ads onto everyone’s “timeline,” Facebook is really trying to leverage its 1.7 billion monthly active users into higher growth for FB stock. It may be a minor inconvenience for users, but it could be a major score for Facebook stockholders.