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Why I Lost My Faith In Facebook Advertising

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May 17, 2012 – Comments (11)

Why I Lost My Faith In Facebook Advertising

Long before GM pulled its $10M in advertising from Facebook, I lost my faith in the platform. As an online media buyer for American Apparel, I had cut the majority of my spend each month for the preceding 12 months. From the time that Facebook stopped serving banner ads through Microsoft to now, the spend I oversaw fell from nearly $1M per year to a few thousand dollars a month.

As I told Direct Marketing News in March 2012: “The return is not there. Unless you’re selling apps or lead generation, I think Facebook ads are underwhelming. I see bad things ahead for the Facebook IPO and perhaps, rising dissatisfaction among clients.”

Why I Lost My Faith In Facebook Advertising

11 Comments – Post Your Own

#1) On May 17, 2012 at 5:25 PM, materialsman92 (35.80) wrote:

i absolutely agree, no one even looks at the advertisements how is this a sustainable business?

 

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#2) On May 17, 2012 at 10:34 PM, Frankydontfailme (27.20) wrote:

4bln in revenue last year they must be doing something right...

This is a non-story, imagine it was national news everytime viacom or CBS lost a 10mln contract? It's pennies to them 

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#3) On May 18, 2012 at 12:47 AM, awallejr (82.72) wrote:

Well 4 bil rev on a 100 bil valuation means what a 4% return off evaluation?  Sounds pretty pathetic to me.  Seriously buy the stock.  The CEO already told you he doesn't care about corporate profits.  He has complete control of the company.  He will become an obscenely rich individual.  He won't give a rats ass abut the investor.

That isn't what I personally look for in an investment.  He has no clue how to monetize this company.  Buy ONE share and leave it at that.

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#4) On May 18, 2012 at 9:13 AM, Valyooo (99.63) wrote:

Awallejr,

The stock being overpriced (which it is) has nothing to do with if the ads are effective or not.

Google seems to make money off of ads...

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#5) On May 18, 2012 at 9:15 AM, Frankydontfailme (27.20) wrote:

I never buy IPOs at the start because of the supply provided by the private insiders. Once it settles, I'll be looking at this one. This pessimism is unreal. Facebook could easily expand revenues 100% year over year. I can't find ANYTHING positive written about facebook on any newspaper or blog.

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#6) On May 18, 2012 at 10:28 AM, Valyooo (99.63) wrote:

Franky,

I really could not possibly agree with you more.  Even though it is so expensive and I don't think their ads are THAT great...their user base is like, 750 million, right?  If they can find a way to make $15/year from each customer, with a P/E of 20 that is a 225 billion dollar company.

Plus, what about other products? They are starting to take searches away from google.  What about a facebook phone, or facebook maps?  Or facebook streaming music and movies. What if they buy spotify?  I just think if you have 750 million customers, you definitely have potential.

But, I do find it frightening that there is a MOVIE made about the CEO in which he states he doesn't care about profits.

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#7) On May 18, 2012 at 11:22 AM, miteycasey (35.10) wrote:

Yeah....10yo girls are looking to buy a Chevy.

I'm not surprised Chevy advertising failed on FB.

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#8) On May 18, 2012 at 11:31 AM, Chancing (< 20) wrote:

well 750 m users do not mean 750 m customers. folks go there for fun and chat, mostly not for looking for potential buy. I don't remember I ever looked or clicked when i was in FB. If i do want to buy something, i just google it and then do whatever from there...

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#9) On May 18, 2012 at 11:50 AM, TMFAleph1 (95.98) wrote:

If they can find a way to make $15/year from each customer, with a P/E of 20 that is a 225 billion dollar company.

That's a gargantuan 'if' -- right now, it's nothing but wishful thinking. Even if by some miracle, that scenario were to unfold, you'd make barely twice your money, based on the current implied market capitalization in excess of $100 billion.

In 2011, Facebook generated $4/ user in revenue -- $15/ user in profits is a pipe dream.

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#10) On May 18, 2012 at 1:14 PM, awallejr (82.72) wrote:

I do take the claimed user numbers with a grain of salt since many people do have multiple accounts.  But didn't their revenues decline 11% last quarter?  That is certainly not good for a momentum stock.

In the end buying FB is buying into Zuckerberg since he still has complete control of the company and more money than he will ever need so no financial pressure.

I don't consider him a true visionary.  I see him as a person who saw a great idea (whether on his own or from the Winkerwhoses twins), went with it and was smart enough not to sell it.

But once you put it on the open market the game changes.  There is now accountability to the shareholders even if you still retain full control.

I would also be concerned come November when the insiders will be free to sell their shares.

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#11) On May 18, 2012 at 2:17 PM, leohaas (35.73) wrote:

Yet another case of a strong hand that is being overplayed. In bridge terms, down one!

I fully agree that advertizing on FB is not yielding the required results for the advertizers. And it is absolutely true that many who are not in the know overvalue FB because of this.

But to call this a Ponzi Scheme shows the writer is overreaching. He admits so much:

"Facebook promises big returns on ad spending, but delivers nothing. Yet, their value and growth continues because they can use that money to grow their user-base more and assert profitability (in this sense it’s not quite entirely a ponzi scheme, but there is no closer idea)."

I am quite convinced by the real arguments. Drop the "Ponzi Scheme" reference!

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