Facebook To Use Browsing History For Targeting Ads - Analyst Blog

Facebook FB recently announced that it will use personal information gathered from activities of its users elsewhere on the web to more precisely target advertisements on the social network.

We believe the addition of the aforesaid feature will help advertisers to determine more relevant ads. However, most U.S. online consumers do not prefer to trade their personal data for more relevant ads as supported by the results of a survey conducted by Consumer Reports.

Hence, this feature has raised privacy concerns worldwide. In an endeavor to pacify these concerns, Facebook declared that from now onwards it would allow its users to see why certain ads pop up in their News Feeds. This resembles Google's (GOOGL) Ads Settings page, where it details a gender, age range and list of interests of a user based on their search history and Google profile.

Facebook also announced its decision to provide a link to an industry website that will allow users to not have their activities on websites tracked, as well as a link to appropriate controls within their smartphones to eliminate mobile app tracking.

Online companies such as Facebook have been facing increasing scrutiny from privacy regulators over time as consumers increasingly post information about their personal lives on the web. Facebook settled charges with the U.S. Federal Trade Commission in 2012, which stated that it had deceived consumers by forcing them to share more personal information than they had desired.

Per the settlement, Facebook is required to get user consent for certain changes to its privacy settings and is also subject to 20 years of independent audits.

Meanwhile, after the failed attempt of purchasing Snapchat, Facebook recently launched a new messaging feature that lets users tap and hold the camera button to record a video straight into the message. This feature is currently available on iOS devices and will be available on Android devices very soon.

Per Gartner, ad market spending is expected to hit $42.0 billion in 2017. We believe that Facebook's strategy to target ads based on browsing history of users will boost company's ad revenues in the near term.

As Facebook's ad business matures, top-line growth is expected to suffer. Facebook's rapid pace of acquisitions is also expected to weigh down on profitability and cash balance in the near term. Intensifying competition from the likes of Google, Yahoo YHOO and Twitter TWTR remains a major concern.

Nevertheless, we believe that Facebook's growing mobile user base, Instagram's increasing popularity, frequent launch of new products and international expansions will boost the company's top line and profitability going forward.

Currently, Facebook has a Zacks Rank #2 (Buy).