Facebook might be inflating the number of people who see advertisements on its platform, according to Pivotal Research Group analyst Brian Wieser. He has a Sell rating on the stock with a price target of $140.
What’s the problem with Facebook ad reach?
According to Facebook’s ad manager, advertisements on the site reach 41 million people aged between 18 to 24 and 60 million between 25 and 34 in the United States. However, U.S. census data suggests that last year, a total of 31 million people were in the age group of 18 to 24 and 45 million were in the 25 to 34 age group.
“While Facebook’s measurement issues won’t necessarily deter advertisers from spending money with Facebook; they will help traditional TV sellers justify existing budget shares and could restrain Facebook’s growth in video ad sales on the margins,” said Wieser.
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“They are not designed to match population or census estimates,” the company said.
Several factors are taken into account, such as location, demographics, user behavior, device data and so on to develop the Facebook ad reach estimates.
Facebook counts it as a view once a video is played for three seconds. This implies that if an ad is clicked on accidentally, it would be counted toward Facebook ad reach. Further, the social networking giant allows people to self-report their age, and therefore, some deviation from the census data can be explained. The company also tracks mobile devices and location data, which means that even tourists are counted. About 5.6 million non-residents entered the United States in January, according to the most recent month’s data from the United States Commerce Department, notes Reuters.
Facebook already clarified its “reach” data in September 2016, when it conveyed to advertisers that the data is inflated. The company has also taken some credible steps to improve the quality of its ad data. In November 2016, the company talked about the updates and corrections it made to its data.
Cashing in on WhatsApp
In other Facebook news, the company is finally looking to generate some revenue from WhatsApp, the chat app it acquired in 2014. According to The Wall Street Journal, Facebook will charge businesses for certain WhatsApp services for connecting them with customers. This could also mean that the company will stop putting ads on WhatsApp, as its revenue needs would be met by charging for business accounts.
Although the social networking giant did not turn down the possibility of ads on WhatsApp, it did mention that the current focus is on business features. Facebook earns a major share of revenue from advertising, which it has already expanded to Messenger and Instagram. The company is fast emerging as a strong competitor for Google, which long enjoyed a monopoly in digital advertising
On Tuesday, Facebook shares closed down 0.76% at $170.72. Year to date, the stock is up more than 48%, while in the last year, it is up almost 35%.