Will P&G’s Targeted Ad Spend Pullback Hurt Facebook?

Consumer products giant Procter & Gamble Co (NYSE:PG) recently said it would spend less money on targeted ads on Facebook Inc (NASDAQ:FB), citing limited effectiveness of the campaigns.

Now investors are scrambling to determine whether the move is a sign that Facebook’s explosive ad revenues are topping, or if P&G’s decision is simply a one-off event that the social media giant will take in stride.

From the Wall Street Journal:

Procter & Gamble Co., the biggest advertising spender in the world, will move away from ads on Facebook that target specific consumers, concluding that the practice has limited effectiveness.

Facebook Inc. has spent years developing its ability to zero in on consumers based on demographics, shopping habits and life milestones. P&G, the maker of myriad household goods including Tide and Pampers, initially jumped at the opportunity to market directly to subsets of shoppers, from teenage shavers to first-time homeowners.

Marc Pritchard, P&G’s chief marketing officer, said the company has realized it took the strategy too far.

“We targeted too much, and we went too narrow,” he said in an interview, “and now we’re looking at: What is the best way to get the most reach but also the right precision?”

While P&G isn’t actually spending less money on Facebook’s platform, targeted ads usually cost significantly more money than wider-reaching ads. Thus, FB will likely be getting a lower amount per ad from the world’s largest advertiser.

Procter & Gamble’s brands include household names like Tide detergent, Bounty paper towels, Pampers diapers, and many more.

If other big companies begin to follow P&G’s lead, Facebook’s targeted ads — which have been a cornerstone of its meteoric revenue growth — could face significant pressure. That would mean a leveling off or perhaps even a decline in revenue per page.

Plenty of other advertisers will continue to use Facebook’s targeting out of necessity — think local political ads, car dealerships, etc. But it may be that national brands just don’t see the returns from targeting specific user types than originally hoped.

While P&G pulls back on targeting, companies like Priceline and others are actually ramping up. Their results in doing so help determine the fate of Facebook’s ad platform at large.

Facebook shares were mostly flat in premarket trading Wednesday at $125.03. FB has gained 19.5% year-to-date, more than doubling the performance of the S&P 500 index in the same period.

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