Why Did GM Bail on Facebook?

It was hardly a development Facebook wanted to see in the media the day before the social networking giant goes public in one of the most eagerly anticipated IPOs in modern history.

But the fact remains that General Motors is pulling $10 million from its Facebook ad budget.

“We regularly review our overall media spend and make adjustments as needed,” says GM marketing chief Joel Ewanick. “This happens as a regular course of business and it’s not unusual for us to move our spending around various media outlets – especially with the growth of multiple social and digital media outlets. In terms of Facebook specifically, while we currently do not plan to continue with advertising, we remain committed to an aggressive content strategy through all of our products and brands, as it continues to be a very effective tool for engaging with our customers.”

In other words, Facebook must not have delivered an adequate return on GM’s advertising investment. And this suggestion could be weighing heavily on investors’ minds today.

“Everybody is thinking about the year 2000: Are these real companies, or is this the tech bubble all over again?” observes Nadav Baum, executive vice president at BPU Investment Management. “”Everybody’s on Facebook. But how are they going to make money?”

So far, Facebook hasn’t done much to pacify this nagging concern. And the fallout from this reality could soon become apparent in the financial markets.

Are you going to be a buyer of FB tomorrow?