Facebook Allegedly Lied To Investors About Young Users Abandoning Platform, Whistleblower Docs Suggest

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by Tyler Durden
Monday, Oct 25, 2021 - 02:59 PM

Anybody who follows business or political or technology news is probably aware by now that Facebook is in the midst of its biggest PR crisis since the Cambridge Analytica backlash that set off an industrywide push to offer tech users more control over their private data.

And the truth is, the leaked documents provided to more than a dozen American media companies by whistleblower Frances Haugen offer a much more expansive view of the tech giant's (mis)deeds. So far, we have learned about FB's internal research showing Instagram hurts the self-esteem of teen girls, how the platform is used in the developing world by human traffickers to fool unsuspecting marks. The documents even revealed that Facebook has an organ-trafficking problem, too.

But with Facebook set to report earnings after the bell on Monday, the latest round of leaks has just hit. As we reported earlier, Facebook has deliberately censored conservative news outlets in the company's misguided attempt to stamp out "misinformation" (Zero Hedge was once briefly banned from sharing our posts on the platform, something the company later claimed was an "accident").

But for shareholders, perhaps the more alarming revelation from Monday's round of whistleblower-driven stories isn't really a revelation at all: it's something any teenager or Gen Zer could have told you. And that is: in the US, teenagers and young adults are using Facebook less and less.

It's a problem that has caused a high degree of consternation among Facebook's top-ranking executives, Bloomberg says. Here's a quick breakdown of the main findings:

  • "Time spent" on the platform by American teenagers was down 16% YoY
  • Young adults are spending 5% less time on the platform
  • The number of teens signing up to use FB is declining
  • People born after the year 2000 are taking longer to create their FB profiles: some are even waiting until they're 24 or 25
  • Many new accounts created by teens are duplicates or spam accounts
  • Users across all age groups are posting less
  • Despite FB's diligent research, employees don't fully understand why these trends are happening or why product changes have failed to reverse them

Bloomberg illustrated some of these trends with a colorful chart:

Source: Bloomberg

When it comes to "optimizing" for young adults, Facebook execs said "we don't know enough to know."

The problem here is this: the documents reveal that Facebook and its leaders are much more worried about the growth trajectory of its global digital ad market than they have let on. Technically, one could argue that the company was withholding material non-public information from its shareholders. Facebook doesn't break down user numbers by age group and its executives have refused to answer questions about the platform's waning popularity with young people. But the trend is so profound, it would be impossible to cover up.

The FB whistleblower, Frances Haugen, is using this fact as the core of a formal whistleblower complaint to the SEC on the grounds that the company deliberately misrepresented these metrics. Haugen also handed over docs showing Facebook and Instagram are both playing down the number of duplicate or spam accounts, allowing them to misrepresent the size of their audience to potential advertisers. That's another big no-no. As of Jan. 2018, FB's internal docs showed that 11% of all teens were classified as "SUMAs" - or "Single User Multiple Account."

Young users are particularly valuable for Facebook and its rivals, because advertisers are willing to pay more for ads that can be targeted to young people (esp. teenagers), because they "don't have established brand preferences." FB also earns 13x per user in the US than in emerging markets like the Asia-Pacific region.

Facebook paid a $100MM fine to the SEC back in 2019 after being accused of making "misleading statements" about the use of user data by Cambridge Analytica. And it's looking extremely likely that the latest revelations will place FB back in the SEC's cross-hairs.

The recent whistle-blower allegations will likely put Facebook in the SEC’s cross-hairs again, said James Cox, a professor at Duke University School of Law who focuses on securities regulation. The SEC will probably scrutinize the company’s public statements on user engagement and how they compare to internal communications, he said.

"If I were at the SEC, I’d map out the statements Facebook made over time and then line them up with the documents from the whistle-blower,” Cox said. “You’re going to find a lot of round pegs that don’t fit into square holes."

Back in 2016, Facebook assembled an internal "Teens Team" of workers dedicated to building products focused on young people. It eventually grew from 6 to 100 employees, and built a number of features targeted at teens. The "Teens Team" even hired its own resident teenager to offer the teen perspective, hiring then-18-year-old Michael Sayman.

Michael Sayman, who worked on the “Teens Team” after joining Facebook when he was 18, would present internally on teen-related topics for other employees interested in a young person’s perspective.

"The whole company was just trying to understand a generation that they weren’t a part of," said Sayman, who has since written a book that includes his experiences at Facebook.

Right now, FB is embracing a strategy centered on Instagram, which is far more popular with young users. The company hopes that many of its Instagram users will eventually "graduate" to Facebook users as they get older, but in recent years, this process - which FB calls "aging up" - has started to wane, possibly a factor of TikTok stealing FB's users away.

We imagine Wall Street analysts will have a lot of questions about user growth during Monday's earnings call. And after that, the SEC is probably already gearing up for another slap on wrist: maybe this time the fine will reach 10-figure territory.