It has been a challenging financial year for Facebook. After incidences of multiple outages, privacy scandals and drawn-out politics, it would seem that Facebook stocks could really use some good news. However, it appears that the company is now under fire by the Department of Housing and Urban Development (HUD) for advertising discrimination.
What Is The HUD Lawsuit?
Facebook was first accused of violating the Fair Housing Act (1968) in 2012, when they allowed landlords to publish advertisements that promoted discrimination by eliminating some target audiences. This prompted protests from civil rights groups and the Washington state, leading to a long-running legal battle.
The situation seemed to finally end a few weeks ago, when Facebook agreed to a settlement with its legal opponents. The terms of this settlement prohibit Facebook from allowing any housing, employment or credit card advertisements that target people by their age, gender or address.
But the peace was brief and the fires were rekindled last Thursday when the HUD filed a lawsuit against the company for housing discrimination.
How Will It Affect Facebook Stock Value?
Facebook has weathered through many PR storms and somehow still managed to stay on top as the world’s leading social media company. As always, they will likely focus on re-winning consumer trust to keep stocks from being too unstable over the months.
However, the real problem facing Facebook stocks is that they rely largely on advertisements to stay profitable. And for social media ads to be both affordable and effective, advertisers need options to enact at least a minimum level of selectivity.
Facebook marketing is the simplest way to do this, with options that allow advertisers to engage with people that share similar demographics.
There is nothing inherently discriminatory about seeking familiarity, and we see more and more businesses that successfully target their potential consumers using demographic data every day.
While the HUD lawsuit can certainly put a damper on investor spirits, it’s important to remember that Facebook is still the leading social media site in terms of size and advertising reach.
Certainly, the discrimination charges are likely to keep investors away from Facebook stock for a short while and motivate advertisers to start looking to other sources for new customers.
However, when competition calls and the numbers are crunched, Facebook is still the only platform that can promise businesses an advertising range of over two billion users. For this reason, it’s safe to assume that even while Facebook stocks may take a hit in the short-term, it doesn’t mean that they might not be a secure long-term investment.