Does Facebook’s New Dating Service Make It a Buy?
Investors are showing Facebook’s stock some love amid the social media giant’s expansion into the online dating world. Shares were up more than 2% midday Wednesday, extending gains that have been in place since the company surprised to the upside with its Q1 earnings despite the data security headwinds that previously shaved approximately one-fifth of the value from the share price.
The timing of Facebook’s F8 developer conference couldn’t have been better to divert attention away from the privacy issues surrounding the company and toward future innovation — including a new dating service. But Facebook can’t seem to steer completely free of the scandals, as evidenced by the reported firing of one of its engineers for “internet stalking” someone on Tinder.
Facebook chief Mark Zuckerberg unveiled the new opt-in dating feature on Tuesday as evidence that the company is looking ahead despite the recent turmoil that has weighed both on the stock price and its reputation. But is a new dating app enough to pull Facebook’s stock out of the doldrums? The short answer is maybe, as evidenced by a stock price that remains below its highs of the year but has begun to crawl back.
The dating service, which gives users the option to connect with people outside of their usual news feed, wasn’t the only new technology that Facebook unveiled at the conference, but it was the one that captured the most buzz. For instance, it inspired a spirited response from Mandy Ginsberg, CEO of Match Group, whose stock suffered more than a 20% decline on the heels of the development. Ginsberg went for the elephant in the room, telling the Wall Street Journal:
“We’re surprised at the timing given the amount of personal and sensitive data that comes with this territory.”
But Match’s pain could be Facebook’s gain, as investors swoon over the idea of the social media giant playing cupid with its users.
Rabbit Out of Zuckerberg’s Hat
It’s unclear whether or not Facebook dating, which is designed to create lasting relationships and not just hookups, will be free or a paid service. But if history is any indicator, Facebook won’t charge for the new feature. This means at the very least it has the potential to do damage to the online dating industry leaders, like Match.com and eHarmony, given Facebook’s war chest of some 200 million users.
But it could also give Facebook advertisers something to celebrate about the company again. For instance, the new dating feature will spotlight local events that could serve as a springboard for more dates.
But even in the midst of the fire during Q1 when the fallout was occurring from the Cambridge Analytica data scandal, Facebook’s revenue, most of which comes from advertising, climbed nearly 50% higher to nearly $12 billion. So while the data security-effect was evident in Facebook’s stock price, it hasn’t surfaced in the fundamentals, at least not yet.
Facebook is resilient and has innovation on its side. Just when you think it’s down, Zuckerberg pulls another rabbit out of his hat. For these reasons, in addition to the momentum from Facebook dating, I wouldn’t write of Facebook’s stock just yet.
Featured image courtesy of Shutterstock.