Facebook Faulted for Saying It Can Reach People Who Don't Exist

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Credit: Chris Ratcliffe/Bloomberg

Facebook claims its platform can reach more people than actually exist in the U.S., which could hurt its push to compete for TV advertising budgets, Pivotal Research Group analyst Brian Wieser wrote in a note to clients.

According to Facebook's Ads Manager, the social media giant has potential access to 41 million 18-to -24-year-olds in the U.S., Wieser wrote. However, there are only 31 million people who fall within that age category, based on U.S. Census data, he said. The gap, which also exists for other age ranges, doesn't seem to be well-known by ad agencies, Wieser said.

The latest finding undermines Facebook's pitch to advertisers: that it's essentially a directory of real people using their real names that the company can target in sophisticated ways. Marketers have long been wary of digital measurement, because on the internet people can make fake profiles and create bots to click on them, creating a false sense of heightened buzz.

"Measurement issues at Facebook have been top-of-mind" for many of the large marketers who dominate TV advertising over the past year, Wieser said, adding that miscalculations could impact how ad budgets are planned. The analyst has a sell rating on Facebook stock.

Facebook said estimates of reach are based on a "number of factors, including Facebook user behaviors, user demographics, and location data from devices. They are designed to estimate how many people in a given area are eligible to see an ad a business might run. They are not designed to match population or census estimates."

For example, Facebook may count non-residents or visitors to a region, as well. The company only charges for people who actually view an ad, not the estimated audience.

This isn't the first time Facebook has come under scrutiny for ad-related metrics. Advertisers and partners criticized Facebook previously for a lack of transparency and inability to verify the data it provides separately. The company disclosed several mistakes in reporting video advertising data late last year, which prompted it to submit to audits by the media industry's measurement watchdog. Since then, the company has been working to restore trust in the data it provides, some of which is verified by third-party measurement companies.

A gap in users could deteriorate confidence in Facebook's numbers, creating an additional challenge as the company competes for advertising dollars outside the digital budgets it and Alphabet Inc.'s Google already dominate. Facebook will likely start to invest heavily in premium video content to attract the larger budgets traditionally reserved for television, said Wieser.

"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," he said.

-- Bloomberg News

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