Facebook ad ROI improves as holiday spend drops 45%, analysis finds

Dive Brief:

For marketers investing in ads on Facebook, the return on investment, or attributed revenue dollars converted from advertising dollars spent, increased to an average index value of 2.5 in December 2018, according to an analysis by C3 Metrics shared with Marketing Dive.
ROI on the platform had dropped to a low of 0.2 in July 2018, down from an index value of 2 in April of 2018. The return on ad spend steadily increased from September to the December high.
Ad spend on Facebook dropped 45% during the 2018 holiday shopping season, because of the previously documented declines in ROI, according to C3 Metrics.

Dive Insight:

While the ROI for Facebook ads appears to be on the upswing, C3 Metrics attributes the reason to reduced spend on the platform, making the average look stronger as a result. The findings related to reduced ad spend on the platform align with other reports showing major brands tempering their investments in Facebook ads in the wake of its Cambridge Analytica scandal and a series of reports raising questions about how the company handles user data. Ad revenue from national marketers was up 25% from January to October 2018 compared to the same time period from the previous year, but the growth is slower than in previous years, according to Standard Media Index.

Facebook's overall ad revenue — including ad sales on quickly growing Instagram — remains strong. Facebook recently reported a 30% rise in ad revenue for Q4 2018, reaching $16.9 billion, amid the growth of users and demand for ad placements in Stories. Mobile ad revenue accounted for 93% of total ad sales, compared to 89% a year ago. Facebook ad revenue increased 38% in 2018 to $55 billion from 2017 to 2018. The company reportedly has more than 7 million advertisers across Facebook, Instagram, WhatsApp and Messenger, with 2 million advertisers using Stories.

The improved ROI might convince some marketers to increase their spend on Facebook. However, the company's privacy issues continue, suggesting marketers will have to make tough choices related to ROI and protecting their privacy of their customers. This week, British lawmakers issued a report accusing Facebook of intentionally violating data privacy and anti-competition laws and called for new regulations. The social networking site is also reportedly negotiating what could be a record-setting, multi billion-dollar settlement with the U.S. Federal Trade Commission, which is investigating whether the Cambridge Analytica scandal violated a user consent agreement that it previously struck with Facebook.

In its continued effort to regain trust with users and advertisers, Facebook has been unveiling new tools aimed at improving privacy and transparency. Beginning Feb. 28, users will be able to see how their contact information is used for ad targeting. Users will be able to see when marketers upload the customer lists to Facebook and when they share the contact information with ad agencies, and when Facebook served them a marketer’s ad.