Shares of Facebook (NASDAQ: FB) are outperforming the broader market today with gains of more than 4%. The reason investors are cheering is news that automaker General Motors (NYSE:GM) is now advertising on the social network again.
Around the time of Facebook's controversial IPO last year, there was much concern over the effectiveness of Facebook's display ads. GM famously and publicly cut its ad relationship with Facebook, saying it would no longer buy ads on the site. GM is one of the biggest advertisers in the U.S. market, so the automaker was a big fish to lose at the time. Car ads simply weren't performing well on Facebook.
GM has now indicated that it plans to resume running ads on Facebook, which is a big vote of confidence in the social network. GM will feature ads for its Chevrolet brand on Facebook's mobile platforms as part of its larger "Find New Roads" campaign. The campaign is notable because it is specifically a "mobile-only" pilot campaign that looks to target mobile Facebook users.
The announcement is important for Facebook on numerous levels. Not only is Facebook regaining a major ad customer, but the news also helps dispel worries that Facebook lags in mobile monetization -- a myth that Mark Zuckerberg has recently been intent on discrediting.
Additionally, Facebook has been trying to help advertisers more effectively target users, leveraging its massive database of information that it collects on Facebookers. The increased targeting is a relatively recent development that was announced in February, and the fact that it so quickly piqued GM's interest is another reason why investors are cheering today.
Targeted mobile ads that tap social data are the key to Facebook's future, and they represent a way in which the company differs from ad rival Google, whose core business is search ads.
Fool contributor Evan Niu, CFA, has no position in any stocks mentioned. The Motley Fool recommends Facebook, General Motors, and Google. The Motley Fool owns shares of Facebook and Google. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.