Meta Platforms to End Third-Party Fact-Checking, Raising Concerns for Advertisers
Last week, Meta Platforms (NASDAQ: META) announced it will discontinue third-party fact-checking programs on its social media platforms. Chief Executive Officer Mark Zuckerberg stated that sites like Facebook and Instagram are built for people to “express themselves freely,” claiming this shift will enhance that freedom.
Notably, this change comes as misinformation on social media has only increased over the years. Some analysts believe this decision could negatively affect Meta’s business, potentially leading to a decline in stock value.
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Shifting Focus: Community Notes as Self-Moderation
Zuckerberg explained that without third-party fact-checks, users will self-regulate through a “community notes” system. This is similar to what X (formerly Twitter) offers, where users can add notes to challenge misleading posts or provide additional context.
This new approach aims to support free speech while combating false information. If users can provide constructive notes, it could lead to more informed discussions and fewer misunderstandings.
However, replicating X’s model could pose risks. Since Elon Musk’s takeover, many advertisers have left X due to worries about decreased content moderation and an uptick in extreme posts. Brands often steer clear of platforms with controversial content to avoid alienating customers.
Though some may favor reducing restrictions on speech, the impartiality of this new moderation process remains in question. It also relies on users taking the time to read and consider the community notes rather than reacting impulsively to posts that provoke strong emotions.
Concerns Over Declining Advertiser Spending
Many observers interpret Meta’s policy shift as a strategy to cater to Trump, who was banned from Facebook in 2021 for two years. By implementing Trump-friendly measures now, Meta could mitigate future scrutiny from regulators or even Trump himself.
The larger concern is that advertisers may respond by moving their budgets to other platforms. Facebook has had historical issues with being linked to unverified information, and with generative artificial intelligence making it easier to create misleading content, the demand for serious fact-checking is increasing. Shifting away from this could be a costly gamble for Meta.
Meta’s stock has seen a remarkable rise, climbing over 400% since the beginning of 2023 following a significant drop of nearly 70% from its 2021 peak through 2022. This resurgence relates to an increase in advertisers choosing Meta as their platform. In the first nine months of 2024, the company reported a 22% yearly growth in sales, totaling $116 billion, and a net income rise of 66% to roughly $42 billion.
If this growth falters, it could pressure the stock, which is currently trading at around historic highs and 29 times its trailing earnings—a valuation that may be difficult to sustain if growth slows.
Should You Still Invest in Meta Platforms?
Meta has enjoyed benefits from increased advertising spending, but this trend may not hold. Alternatives for reaching consumers are multiplying, including Walmart‘s recent acquisition of TV maker Vizio, which could enhance its advertising presence, and Reddit, which is also pursuing growth in ad revenue. Additionally, economic uncertainties may lead companies to cut back on advertising expenses.
While Meta has experienced significant growth recently, abolishing the third-party fact-checking system could be ill-timed and costly. For investors, it might be worth considering other growth opportunities instead of Meta Platforms today, especially in light of its elevated stock valuation.
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Randi Zuckerberg, a former Facebook executive and sister of CEO Mark Zuckerberg, serves on The Motley Fool’s board. David Jagielski does not hold any positions in the mentioned stocks. The Motley Fool recommends both Meta Platforms and Walmart and maintains a disclosure policy.
The views and opinions expressed herein are solely those of the author and do not necessarily reflect the opinions of Nasdaq, Inc.
