Advertising on Facebook Inc. (NASDAQ:FB) provides a 22% boost to ROI -- at least it did for 22 recent campaigns covering a total of 70 million consumers, says Brad Smallwood, head of measurement and insights at Facebook. This news is yet another impressive metric to add to Facebook's laundry list of success with advertisers in its first 10 months as a public company.
Facebook's quest for ad dollars
Right out of the IPO gate, analysts had big expectations for Facebook to follow through on its massive membership base with ad revenue. The company undoubtedly delivered -- especially in the mobile arena.
Though Google Inc. (NASDAQ:GOOG) definitely did take the mobile ad crown in 2012 with 54.5% of all mobile ad spending in the U.S., Facebook's nascent success in mobile is mind-boggling. It was only in June 2012 that the company introduced its first mobile-only ad feature, yet mobile ads accounted for almost 25% of Facebook's $1.33 billion in fourth-quarter 2012 ad revenues, up from virtually zero earlier in the year.
Facebook reported better-than-expected fourth quarter earnings Wednesday with revenue boosted from stronger mobile ad sales. But higher costs dragged down the social network's profit. MarketWatch's Dan Gallagher and Ben Pimentel report. (Photo: AP)
Facebook Inc. (NASDAQ:FB)'s progress in mobile is a welcoming sign for the company's investors. Going forward, success in the mobile market is absolutely essential; eMarketer projects annual mobile ad spending to triple by 2016, from $4 billion today to $12 billion.
Mark Zuckerberg moves fast, and he isn't afraid to break things. Never mind making money on mobile, a year ago Facebook didn't even have a decent mobile app. How did Facebook become a profitable mobile company? Rolfe Winkler explains. Photo: Getty.
Adding even more perspective, eMarketer estimates that 64% of all 2012 ad spending went to the five largest companies in the digital ad market, of which Facebook is the third largest, following Google and then Yahoo!
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Notably, however, Facebook Inc. (NASDAQ:FB) grew its market share at a faster rate in 2012 than any of the other five companies, growing year-over-year ad spending by 24% compared to Google's 20% growth.
Competition will intensify
The competition among the five largest companies in the digital ad market -- especially Google, Yahoo!, and Facebook -- will undoubtedly grow even more heated as the year goes on.
Each of these ad juggernauts is ramping up its efforts in different ways. Yahoo!'s acquisition of Jybe yesterday was yet another sign of the company's data- and social-driven approach to becoming a better curator of information. The acquisition is the second announced under recently appointed CEO Marissa Mayer. Jybe is a personalized recommendation company that provides recommendations based on a user's social contacts. The acquisition is in line with the company's acquisition of Stamped, a mobile startup that specialized in social recommendations, just five months ago.
But the bulk of the battle continues to take place in the mobile market. Google Inc. (NASDAQ:GOOG) continues to fight for the mobile market through its proliferating Android devices. In the third quarter of 2012, Android tablets made up 41% of tablets shipped, up from 22% of tablets shipped in the fourth quarter of 2011. Google's dominance is inescapable.
Then there's Facebook Inc. (NASDAQ:FB), which CEO and co-founder Mark Zuckerberg declared a mobile company in its fourth-quarter earnings release. Of the company's 1.06 billion monthly active users, or MAUs, as of Dec. 31, 2012, 680 million of them where mobile MAUs -- that's a 57% year-over-year increase.
Facebook's value proposition will grow stronger
Going forward, Facebook Inc. (NASDAQ:FB) has embarked on several strategic plans that should make its value proposition to advertisers even more attractive during 2013.
For instance, the same data by Datalogix that showed a 22% growth in ROI for 22 different Facebook campaigns can also be used as a tool for advertisers, allowing Facebook to access purchasing data without revealing users' identities. This essentially gives advertisers the ability to tailor their campaigns to different segments, such as hardcore or occasional buyers.
Also, rolling out this this week as an official service after a short period of beta testing is Facebook's lookalike audiences. This targeting option for advertisers allows them to reach out to a group of customers with similar characteristics to their current customers.
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One post on the Facebook Studio blog said.
"We've seen this new type of targeting drive a wide range of success metrics for direct response companies like Fab, including lower cost per checkout, lower cost per acquisition, larger purchase size, and faster and increased return on investment."
The race continues
2013 will mark another year of fierce competition for digital ad dollars. Facebook Inc. (NASDAQ:FB) is on track to continue its winning streak and likely gain even more market share as the company's value proposition for advertisers continues to grow stronger.
COMMENTARY: In a blog post dated September 1, 2012, I reported that internet research firm eMarketer lowered its forecast for Facebook's revenues for the year 2012 from $6.1 to $5 billion. If you do the math this is a drop of 18%. It was eMarketer's opinion that Facebook would not be able to deliver on mobile monetization quickly enough, even though more users were accessing Facebook via a mobile device. In fact, Facebook reported that 680 million users or nearly 70% of its 1 billion users, were doing just that. However, Facebook was not fully able to capitalize on this switch over when it came to mobile ad revenues. The main reason being that brand marketers were still taking a wait and see attitude when it came to mobile advertising, and treated mobile as experimental medium. In spite of these perceptions, Facebook generated approximately $500 million in mobile ad revenues, representing about 10% of total ad revenues for the year 2012.
The problem Facebook faces it when it comes to mobile advertising, is that mobile ads are a penny business. Mobile ad rates per thousand are about one fourth those of desktop ad rates, so it takes many more mobile ads to generate the same dollar results as it takes on the desktop. Furthermore, Facebook like many sites dependent on ad revenues, is generating far less revenues per user from foreign countries, especially in Asia (China, Indonesia, Taiwan, etc.). If growth in advertising is to come from mobile, Facebook will have to find a way to increase average revenues per user from outside the U.S., and this is not going to be an easy thing to do. In a blog post dated October 30, 2012, I commented on this mobile "revenue problem."
It is obvious that Facebook must find other sources besides advertising if it is to meet investor expectations. This is the principal reason why Facebook's share price continues to be well below the $38.00 per share IPO issuing price. On March 22, 2013, Facebook's share price ended the trading day at $25.73 -- 32.29% below the original IPO issuing price.
There seem to be many opinions regarding Facebook's share price. About one-third believe it is over-priced, one-third have set a target price of $25 to $26 (which is where it is right now), and the other one-third believe it will go back up to its original IPO issuing price of $38.00. If I were a Main Street investor I would watch the advice given by A&G Capital analyst Hilary Kramer about Facebook's share price when she conducted an interview with the WSJ back on January 30, 2013.
Courtesy of an article dated March 21, 2013 appearing in The Motley Fool and an article dated January 30, 2013 appearing in The Wall Street Journal
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