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Facebook Inc. (NASDAQ:FB) News Feed Algorithm Update Rattles Investors

Facebook stock was on the receiving end after the giant social networking company said it will make changes to its core news feed product. Shares of the company dropped by as much as $8.4 as investors raised concerns that such a move could significantly affect the company’s revenue generation capabilities.

 News Feed Algorithm Change

Facebook CEO, Mark Zuckerberg in a post said the new changes in news feed will prioritize content from user’s friends, rather than from pages, they like. The changes mean fewer posts from businesses and publications and more posts from friends and family.

According to the executive, the changes seek to ensure meaningful interaction on the social network. The company believes the changes will encourage users to have more conversations with people they know, rather than consume content from big brands.

“I expect the time people spend on Facebook and some measures of engagement will go down,” said Mr. Zuckerberg. “But I also expect the time you do spend on Facebook will be more valuable.”

 Potential Impact

While it is a welcome change for users, the same cannot be said about for investors given its potential impact. A decline in engagement between users and big brands could adversely affect Facebook’s ability to strengthen its revenue-generating streams.

The amount of time spent by users on the network has been on the rise in recent quarters. The new algorithm could put an end to that, given that it will put less emphasis on videos from publishers and pages. Videos have had a cannibalistic impact on users allowing most of them to spend more time on the platform.

However, News Feed Algorithm changes could also have a positive impact on Facebook Advertisers. The update could mean an increase in paid content that people get to see

Advertisers are already showing the willingness to spend on the giant network platform seen by the average price per impression climbing to 35% in the last quarter. Unlike other platforms, Facebook continues to provide best returns on investment thus the reason why advertisers continue to flock the platform.

About the author

Daryl Brant

Brant is Investing News Center's writer focused on technology companies.

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