GM abandons Facebook ads just days before IPO
Thursday, May 17, 2012/
With less than two days now until Facebook’s initial public offering, the social network has been dealt a massive blow after General Motors announced it would not renew an advertising contract with the company worth $US10 million.
The announcement comes just after Facebook said it would increase the size of its share sale by about 25%, while it also upped the price range for the float and is now expected to raise as much as $US12 billion and hit a valuation north of $US100 billion.
About 1,000 Facebook shareholders, many of them employees, are set to become millionaires.
But with 48 hours to go, GM has delivered a blow to the company’s confidence. A spokesperson said this week the company had “no plans” to continue advertising with the social network.
“We regularly review our overall media spend and make adjustments as needed,” he told the Washington Post. “This happens as a regular course of business and it’s not unusual for us to move our spending around various media outlets.”
The announcement comes as Facebook executives are attempting to show investors how it can sustain its business model in the long term, in no small part by attracting new advertisers.
Facebook’s profit fell 12% in the first quarter to $US205 million, while revenue growth slowed from 55% to 45%, up to $US1.06 billion.
Experts point out that while the $US10 million figure is not altogether critical, it’s representative of what could happen if other advertisers follow suit – especially if social network advertising ends up being a very industry-specific practice.
However, there is some relief – Ford announced it will continue with its Facebook contracts.
“It’s all about the execution. Our Facebook ads are effective when strategically combined with engaging content and innovation,” the company said on Twitter.
“We continue to have a strong, collaborative relationship with Facebook, which includes first-of-a-kind vehicle reveals, advertising and innovative ways of sharing content,” a spokesperson said later on.
But Facebook isn’t keen on slowing down just yet. It increased the size of the IPO by 25%, adding around 84 million shares – which are now priced $US34 at the high end.
The additional shares will be added from current investors Peter Thiel and James Breyer, not from the actual company. Zuckerberg will hold 55.8% voting power after the new shares are added, down from 57.3%.