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Facebook Really Wants You to Know How Sorry It Is

By Evan Niu, CFA - Jun 14, 2019 at 2:20PM

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And is willing to put its money where its mouth is.

It would be an understatement to say that Facebook ( FB 2.78% ) has had a rough couple of years. Every week seems to bring new revelations about just how little the company cares about user privacy, despite public assertions that privacy is of utmost importance. The largest social network on Earth just got kicked out of a market index for socially responsible companies due to its myriad infractions, for instance.

In its ongoing push to rebuild user trust, Facebook is about to go on an ad blitz.

Mark Zuckerberg on stage

CEO Mark Zuckerberg says he's committed to a private future. Should investors believe him? Image source: Facebook.

Facebook's advertising expenses are about to skyrocket -- even more

The Wall Street Journal reports that Facebook could more than double its current levels of advertising spend over the next two to three years in order to get the message out there. Facebook might also include its other prominent brands like WhatsApp and Instagram, which have also garnered criticism.

"There's no question we made mistakes and we're in the process of addressing them one after the other, but we have to tell that story to the world on the trust side as well as on the value side," Chief Marketing Officer Antonio Lucio told the outlet. We've heard that before. Lucio joined Facebook last August after getting poached from HP. Facebook already started to run apology ads last year, such as this one you may have seen:

Facebook wouldn't disclose to the Journal how much it spends on advertising, but third-party ad-tracking firm Kantar estimates that the company spent $382 million on ads in the U.S. in 2018, according to the report. However, this information is disclosed in the company's annual report 10-K. Global advertising expenses more than tripled to $1.1 billion last year.

Chart showing annual advertising expense

Data source: Form 10-K. Chart by author.

That $1.1 billion represented 14% of total sales and marketing expenses, which also include things like salaries and stock-based compensation for Facebook's salesforce. In 2017, advertising expenses comprised just 7% of sales and marketing expense. That means the company's advertising expenses could soar above $2 billion in the years ahead.

Boosting expense growth outlook

In April, CFO Dave Wehner upwardly revised his guidance on expense growth for 2019, in part to accommodate for the record fine of $3 billion or more that Facebook expects to get hit with as a result of an ongoing Federal Trade Commission investigation.

"We now anticipate full-year 2019 total expenses to grow to 47% to 55% compared to 2018, up from our prior guidance of 40% to 50% growth," Wehner said. "The $3 billion accrual accounts for approximately 10 percentage points of the anticipated expense growth."

The renewed push will very much be a global initiative, according to Lucio, spanning numerous markets around the world while differentiating each service's value proposition. "Our objective is to build brands that stand the test of time. We're experimenting and starting from scratch in each market," said Lucio. "On the direct-to-consumer side, we have never had an effort of this magnitude."

Historically, most of Facebook's ad efforts have been to court advertising customers as opposed to appealing directly to consumers.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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