Facebook's GM Fallout: Analyst Dismisses Concern Ahead of IPO

6:03 AM PDT 5/17/2012 by Georg Szalai

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Pivotal Research Group's Brian Wieser says investors need not read too much into General Motors' yanking $10 mllion in advertising from the social network.

With General Motors deciding to cut its $10 million a-year advertising budget with Facebook, one Wall Street observer suggests that the news just ahead of the social network's IPO on Friday may not cause too many headaches for the Mark Zuckerberg-led company.

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The Wall Street Journal had reported the GM decision, saying that paid Facebook ads “had little impact on consumers’ car purchases" for the auto giant.

"While this incident highlights the unproven nature of Facebook’s durability, we caution investors from reading much into this news as the likely audience is internal to GM or possibly other media owners, with a goal of implying that GM is willing to walk away from any given negotiation," said Pivotal Research Group analyst Brian Wieser.

He estimated that GM represents one of the largest marketing budgets on Facebook.

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"While this news does highlight our pre-eminent concern about Facebook – namely, that the company is still highly risky - we would not recommend reading too much into this specific news for several reasons," the analyst suggested.

He highlighted the need for GM management to highlight cost consciousness. Plus, "GM is still spending $40 million on marketing services associated with Facebook" in the form of content, agencies and other expenses, Wieser said.

Finally, he also suggested that the news could be a GM negotiation ploy. After all, advertisers "don’t normally talk to the press about it unless they have a good reason to do so, not least because they may wish to work with - and extract favorable terms from - those media owners again in the future," Wieser said.

Facebook on Friday is expected to sell shares in an initial public offering that could value the company a $104 billion. Company executuves have been meeting with investors over the last couple weeks ahead of the IPO.