Please ensure Javascript is enabled for purposes of website accessibility

Will General Motors Make or Break Facebook's Mobile Ad Platform?

By Steve Symington - Apr 13, 2013 at 2:15PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

General Motors announced that it will start buying ads on Facebook's mobile platform. Does that make Facebook stock a buy?

On Tuesday, General Motors' (GM 4.00%) marketing VP, Chris Perry, said his company will resume buying Facebook (FB 4.24%) advertisements for the first time since last May.

The new ads -- which are part of a GM advertising "test program" -- will feature the Chevrolet Sonic, an entry-level subcompact car with which GM is targeting younger buyers given its "youthful style and driving experience."

General Motors 2013 Chevy Sonic

2013 Chevrolet Sonic RS. Photo: GM.

Given the younger target audience for the vehicle, I suppose it should come as no surprise that GM is only taking advantage of Facebook's mobile ad platform for now.

So why's this a big deal?
Last time around, while GM was more than happy to keep its free Facebook page alive, the automaker made the high-profile decision to stop paying for ads on Facebook just days before the social network's much-hyped initial public offering.

Of course, that wasn't the only reason many considered Facebook's IPO an absolute disaster, but the ill-timed demonstration of a lack of confidence in the company by GM certainly didn't do it any favors. As a result, Facebook undertook a concerted effort to prove the worth of its advertising platform and of late has placed increasing focus on further developing its mobile offerings.

Sure enough, Perry called out Facebook's recent labor as one of the big reasons GM is dipping its huge toes back into the ad pool, saying the program "utlizes newly available targeting and measurement capabilities on Facebook" -- probably a reference to Facebook's new "Custom Audience" advertising tools that fellow Fool Chris Neiger highlighted last month.

The upside
On one hand, just as many of us were concerned about the wider risks of other companies following GM's lead out of Facebook ads last year, we shouldn't underestimate the positive effects of this week's news. However small its investment, the fact remains that GM consistently occupies a perennial spot in the list of the largest advertisers in the United States.

As a result, GM's vote of confidence is worth much more than the money it spends and greatly improves Facebook's chances of convincing other companies that its platform is worth their dollars.

The risk
On the other hand, what if GM ultimately decides Facebook's mobile ad platform isn't as effective as both companies had hoped? After all, regardless of how useful Facebook says its new tools are, it's the advertisers who have the final say.

If GM pulls the rug out from under Facebook, it'll be back to the drawing board for the social-networking giant, which desperately needs to show the world it knows how to monetize the more than a billion monthly active users on its site.

In the end, Facebook shareholders should keep a close eye on what GM thinks of the platform; one way or another, its opinion could very well be a defining moment for Facebook's future.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

General Motors Company Stock Quote
General Motors Company
GM
$37.42 (4.00%) $1.44
Meta Platforms, Inc. Stock Quote
Meta Platforms, Inc.
FB
$191.63 (4.24%) $7.80

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
332%
 
S&P 500 Returns
118%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/27/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.