The Unstoppable Facebook

A report by eMarketer released earlier this year expects US Digital Video ad spend to grow from $7.46 billion in 2015 to $9.59 billion in 2016. The market is projected to be worth $14.77 billion by the year 2019 with mobile accounting for $6.82 billion of the share. Social networking giant Facebook (Nasdaq: FB) has already captured the world of mobile advertising and is now looking to become the giant in video advertising as well.

Facebook’s Financials

Facebook’s Q2 revenues grew 59% over the year to $6.44 billion compared with the market’s estimates of $6 billion. EPS of $0.97 grew 94% over the year and was ahead of the Street’s projections of $0.82 for the quarter. Overall profits grew 186% over the year to $2.05 billion.

By segment, advertising revenues grew 63% to $6.24 billion and revenues from payments and other fees fell 8% to $197 million. Mobile accounted for 84% of advertising revenues for the quarter compared with a 76% contribution a year ago.

Among operating metrics, daily active users (DAU) grew 17% over the year to 1.13 billion at the end of June. Overall, the platform now sees more than 2 billion searches daily and has a library of over 2.5 trillion posts. Small and medium businesses are continuing to set up Facebook pages and have helped Facebook record over 60 million monthly active business pages. Mobile DAUs grew 22% over the year to 1.03 billion. Monthly active users (MAU) grew 15% to 1.71 billion and mobile MAUs grew 20% to 1.57 billion. For the period, average revenue per user grew to $3.82.

Earlier this month Facebook revealed that its Messenger now had over 1 billion active users, making it the third service after Facebook and Whatsapp to achieve that milestone. Instagram is growing at a fast clip as well and now has over 500 million active users.

Facebook’s Video Advertising

Like Twitter, Facebook is also increasing its focus on video. As the management put it, Facebook sees “a world that is video-first, with video at the heart of all our apps and services”. As part of this initiative, Facebook had launched its video streaming service Facebook Live this year. It did not divulge statistics about the service, but it has been impressed with the performance and is continuing to add features to the service. Recently, Facebook added creative expression to the service that will provide users with access to doodles, which can be overlaid on videos. It also released an API to help broadcasters use professional equipment.

Facebook is mindful of the balance that needs to be maintained between ads and content so as not to drive users away from the service. As a result, within video advertising, it is evaluating options of running ads in between video content instead of running them before the video clip plays. It has not revealed details on advertising to its live video content. Increasing revenues from video ads should be visible in Facebook’s financial performance for the next year. But all the video content and growth will come at an additional cost as Facebook will have to spend more on deploying data centers and networks to host the data-intensive videos. Like Twitter, Facebook has also tied up with several news organizations including CNN, The New York Times, digital publishers like Mashable, Huffington Post, and celebrities including Kevin Hart, Gordon Ramsay, and Deepak Chopra to host Facebook Live Videos. Reports reveal that the acquisition of content would cost Facebook more than $50 million.

Despite the rosy numbers, analysts are marginally concerned about Facebook’s ad load. Ad load is the term used to measure the volume of ads that users normally see. According to Facebook, it has achieved the optimum ad load and will not be pushing more ads on to the viewers. Instead of experimenting with price and volume, Facebook is now focusing on increasing advertising across its Audience Network –third party websites and apps. Facebook is also worried about the ad growth and on the call mentioned that it expected lower ad revenue growth in the next two quarters as its ad load is expected to grow only modestly over the next year.

Meanwhile, the market is impressed by Facebook’s recent quarterly results. Its stock is trading at 52-week high levels of $125 with a market capitalization of $357.5 billion. It had fallen to a 52-week low of $72 in August last year.

Marc Zuckerberg has built a spectacular company by all measures.

Photo Credit: Marco Paköeningrat/Flickr.com