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Facebook Marketplace : The Wild West of E-Commerce

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08/16/2019 | 05:45am EDT

By Khadeeja Safdar

F Inc. created an online flea market where users not only see all the bicycles, bird houses and BMWs for sale nearby, but also the names, profile photos and general locations of buyers and sellers.

It is so popular that more than one in three people in the U.S. use it monthly, according to Facebook. Because Facebook started as a platform for people who knew each other, its Marketplace -- at least in theory -- operates on the notion that on the other side of every online deal is a real person with a network of friends and a social-media history.

But the experiences of many people who use the marketplace suggest that creates a false sense of security and a fertile ground for scams or misconduct -- on both ends of transactions.

Some buyers say Facebook sellers change prices on items, list stolen or fake products, or are scammers operating under multiple profiles. Sellers say they are sometimes dealing with unreasonable offers, fraudulent payments or no-shows at scheduled meetups.

Bad actors sometimes disappear after blocking the victim -- a feature that prevents someone from seeing a profile. Facebook Marketplace also allows buyers and sellers to put their reviews on private mode, which many people say defeats the purpose of creating a community of reviewers and building trust.

Sgt. Robert Parsons of the Dunwoody, Ga., police department said a Facebook Marketplace sale in his town ended up as a robbery at gunpoint. Such incidents have prompted Dunwoody and police departments across the U.S. to open up their offices as a safe meeting place for people making Facebook transactions.

"Criminals have turned it into a place where they can get access to victims," Sgt. Parsons said. "Just because someone has a Facebook profile doesn't mean that's who you are talking to."

On help forums, Facebook advises users who say they have been the victims of crimes to call law enforcement or report an offending profile to Facebook. Facebook also said users can assess from someone's profile how long they've used the site and whether there are any mutual friends.

"We are constantly working to make Marketplace as safe and reliable a place to buy and sell as possible," said a Facebook spokeswoman. "Ultimately these are transactions between real people and, while we have robust measures and advice in place to try to keep people safe, no system is perfect."

Deborah Liu, Facebook's vice president of marketplace and commerce, said she spearheaded the launch of the marketplace three years ago to encourage the bartering behavior that was taking place in informal Facebook user groups.

Like Craigslist, the social-media giant doesn't exercise control over payment, delivery or pricing. It also doesn't charge users. Facebook makes money by selling ads, which appear between product listings.

Unlike Facebook groups, which can boot a member for violating rules, Marketplace offers no such control to users, though Facebook itself can revoke a users' buying or selling privileges after a review, according to Ms. Liu. Though she said that a team of reviewers scrutinizing flagged profiles need to ensure they aren't booting people unfairly. "We actually have to do some due diligence and understand what happened."

Lindsey Sterling, a 30-year-old nurse in Toronto, said she often sells makeup on the marketplace because it is so easy to use, but the lack of oversight is problematic. Earlier this year, she purchased a Kylie Jenner lip kit from a woman in Toronto and transferred $30. "The profile looked legit," she said.

The person continued promising it was on its way, but the package never arrived, she said. She and her friends have been scammed so many times that they joined a Facebook group called "Facebook Marketplace Scammer Alert," she said. The purpose of the group is for members to warn each other about bad actors, particularly those who have set up multiple profiles. It has over 2,000 members.

The number of users on Facebook makes it easy for sellers and buyers to find each other and chat capabilities make in-person meetups seamless. Brian Nowak, a Morgan Stanley analyst, told Facebook executives on a February conference call that he used the marketplace to unload a 50-pound steel anchor in the yard of a house he had purchased.

"It sold in a day," he said on the call. Then he listed old shoes, which also went quickly. "There's a lot of liquidity," he said.

The marketplace's initial rollout in 2016 resulted in Facebook issuing an apology for allowing guns, drugs and wildlife to be listed for sale. The company blamed the posts on a technical issue with its system for identifying posts that violated its policies.

Facebook Marketplace still allows sellers to list items that wouldn't normally be allowed on other retail platforms, such as leftover tacos, worn dentures and used makeup. "You can sell anything on this thing," Facebook Chief Operating Officer Sheryl Sandberg said in response to Mr. Nowak.

Ms. Liu said the company uses machine learning to detect and block products that violate its policies. Users can appeal the decision or report a product if Facebook mistakenly blocks the wrong item or misses something.

Facebook doesn't police products that don't violate its policies, she said, but over time algorithms show listings that match a person's browsing preferences. "We are not in the business of telling people what they can buy and sell," she said.

Frank McKenna, chief fraud strategist at PointPredictive, which makes software to detect loan and transaction fraud, said the current lack of oversight on Facebook Marketplace makes it ripe for payment fraud. People are paying with fraudulent Venmo accounts, fake bills and bad checks, he said.

"It is a scammer's haven," Mr. McKenna said. "They love it because they can create a fake profile and it legitimizes them."

Facebook said it has some restrictions in place for sellers to dissuade scammers. Its current requirements for sellers say that they can't be new to Facebook and must be over 18.

At the end of last year, Facebook estimated duplicate accounts represented approximately 11% of the site's 2.23 billion monthly active users, while false accounts made up 5%, totaling over 100 million profiles.

Facebook said it removes fake accounts regularly and is working on a new system that will make reviews more transparent. The company recently announced that people will soon be able to pay for their purchases directly on Facebook. Ms. Liu said buyers can still contact Facebook through its help page if a scammer blocks a victim to escape scrutiny.

Sharing personal information can sometimes pose a security risk. Mr. McKenna said his wife feared for her safety when a woman turned hostile after picking up a handbag from their house, he said. "Instead of selling a $100 item, you are now worried about your whole property."

News reports abound of transactions gone wrong. In July alone, several people reported robberies and other incidents that started with Facebook Marketplace interactions. In Shreveport, La., a victim told the police a buyer pulled a gun and took off with the item. In Racine, Wis., a woman said a buyer pepper sprayed her and ran off with her two iPhones without paying. In Memphis, a man was shot during what was supposed to be a routine sale.

Stone Pannell, a 25-year-old in Memphis, said his road bike was stolen last month from his porch and soon after appeared on Facebook Marketplace. He found it listed for $850.

He called the police, but said he was told the officers couldn't help unless the bike was brought to a pawnshop, which would trigger an alert for a stolen item if the serial number matched with his.

Mr. Pannell set out to get the bike back on his own. He told the seller he had reported him to the police but wouldn't press charges if the bike was returned to him. The seller agreed to leave the bike at a location for him to pick up.

Despite getting his bike back, Mr. Pannell said he was taken aback by the lack of accountability. "If the guy knew everything I knew," he said, "then he would have just said 'whatever' and blocked me."

Write to Khadeeja Safdar at khadeeja.safdar@wsj.com

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Financials (USD)
Sales 2019 70 251 M
EBIT 2019 24 007 M
Net income 2019 17 666 M
Finance 2019 51 849 M
Yield 2019 -
P/E ratio 2019 31,0x
P/E ratio 2020 20,1x
EV / Sales2019 6,98x
EV / Sales2020 5,55x
Capitalization 542 B
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Mean consensus BUY
Number of Analysts 50
Average target price 231,80  $
Last Close Price 189,93  $
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Mark Elliot Zuckerberg Chairman & Chief Executive Officer
Sheryl Kara Sandberg Chief Operating Officer & Director
David M. Wehner Chief Financial Officer
Michael Todd Schroepfer Chief Technology Officer
Atish Banerjea Chief Information Officer
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