Facebook's advertising business is a major selling point in its upcoming initial public offering, but some advertisers aren't sure they're getting a good value, according to a report in The Wall Street Journal.
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The site encourages advertisers to utilize new forms of ads, such as sponsored stories, that are difficult to track because the social network for the most part won't allow them to be tagged with cookies, said the report, making it difficult to justify devoting more money in advertising budgets toward them. Meanwhile, with sites like Yahoo (NASDAQ:YHOO) and Google (NASDAQ:GOOG), advertisers can better measure the return on their ads.
"The question with Facebook and many of the social media sites is, 'What are we getting for our dollars?'" vice president of marketing at Kia Motors America Michael Sprague told The Journal, adding that it's not clear whether consumers see the car company's ads and whether that leads to new sales.
Considering Facebook makes $3 billion a year from advertising, this is something potential investors in the company's upcoming IPO are looking at closely. "The questions about Facebook's ad business also creates a dilemma for bankers and investors who must decide whether Facebook deserves a lofty valuation. People familiar with the matter have said Facebook will seek a $100 billion valuation," the report said.
A $100 billion valuation is roughly 33 times the company's ad revenue, which was $872 million in the first quarter. BIA Kelsey analyst Jed Williams told The Journal that the social network's revenue would need to grow 41% each year for five years to justify that valuation.
Facebook isn't ignoring these advertiser concerns, however. Last year, the social network started offering tools with the help of comScore and Nielsen to let them see their campaigns' progress on the site, according to the report.
On Monday, executives from Facebook will begin pitching the company to investors for its IPO planned for May 18, according to The Journal.