This could be the next headwind for Facebook, despite earnings beat

What Facebook is doing poorly

Facebook's future profitability could be strained as the highly-charged political discourse on the social network sours the user experience for many, a fund manager told CNBC on Thursday.

Phil Bak, CEO of ACSI Funds, believed many of Facebook's core users were getting turned off by the heightened political rhetoric, spurred by the rise of fake news. Many users felt that their commitment and willingness to participate in discussions on the social network was slowing down, with interactions increasingly dominated by fewer, "louder" people, Bak said.

"There are times I've gone on Facebook and I've felt like it's my crazy uncle standing with a bullhorn screaming on a street corner. I think a lot of people share that experience," he told CNBC's "Squawk Box."

Bak pointed out that unless Facebook worked to improve the user experience, users could flee once a better alternative came along. That may be a tall order: Facebook runs the risk of alienating a sizable portion of its user base by filtering news.

A woman walks past the Facebook logo at the Facebook Innovation Hub on February 24, 2016 in Berlin, Germany.
Sean Gallup | Getty Images

Critics have accused Facebook of doing a poor job in stopping the spread of fake news stories on its platform during the U.S. election cycle. A Buzzfeed report analyzing data showed fake news stories generated more engagement on Facebook than real news produced by mainstream media companies.

In response to the criticism, Facebook introduced new steps to tackle hoaxes and fake news, including tapping into its mammoth user base to identify and report fake stories, and working with fact-checking organizations.

But Facebook faces no immediate danger of losing its core user base, at least based on its latest quarterly earnings report.

On Wednesday, Facebook reported a 17 percent on-year growth in monthly active users from an already large user base during the October-December quarter, while the total number of daily active users reached 1.23 billion, soundly beating Wall Street's estimates.

Showing just how well it is able to monetize its massive user base, out of Facebook's reported $8.81 billion quarterly revenue, $8.63 billion came as a result of advertising, which saw a notable 53 percent on-year increase.

The spike in last quarter's user engagement may not, however, last into the current financial year. Analysts pointed to the massive buzz around last year's U.S. election as a key factor that led to users spending more time on Facebook.

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David Williams, CEO of Williams Capital Advisors, told CNBC's "The Rundown" the absence of the massive election bump could see the social network's numbers taper in the current financial year. He also pointed out that President Donald Trump's immigration policies could see the cost for hiring engineers go up, which could also hurt Facebook's bottomline.

ACSI Funds' Bak added that overall the social network has not done a good job, of late, in focusing on improving the user experience and ensuring its core user base remained "anti-fragile" and continues to come back to the platform.

"So far they've been very lucky because everyone wants to be on Facebook because everybody (else is) on Facebook," he said.

Disclosure: ACSI Funds own Facebook shares through their exchange traded fund.

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