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Facebook Delivering Strong Advertising Growth

Posted on Friday, Jul 31st 2015

According to a report by media agency Carat, the global advertising market is projected to grow 4.6% this year to $540 billion. The growth will be driven by increased spending on digital media which is projected to grow 15.7% this year. Overall digital media is expected to account for 24% of advertising market spend for the year. The researcher projects mobile advertising to grow 50% this year and video advertising to grow 22% over the year. Social media giant Facebook (Nasdaq: FB) is using impressive moves to deliver in this high growth market.

Facebook’s Financials

For the recently reported second quarter, Facebook’s revenues grew 38% over the year to $4.04 billion, ahead of the Street’s forecast of $3.99 billion. EPS of $0.50 was also ahead of the market’s forecast of $0.47 for the quarter.

By segment, advertising revenues grew 43% over the year to $3.83 billion. Mobile advertising accounted for 76% of total revenues compared with a 62% share reported a year ago. Revenues from payments and other sources fell 8% to $215 million.

Among operating metrics, Facebook’s daily active user base increased 17% over the year to 968 million for June 2015 with mobile users increasing 29% to 844 million. Monthly active users grew 13% over the year to 1.49 billion. Mobile monthly active users grew 23% to 1.31 billion.

Facebook’s Improving Offerings

Facebook continued to improve their offerings for both advertisers and its users. To help get more users from developing countries onto their platform, earlier this week Facebook announced plans to scale up efforts for the Internet.org platform. The platform aims at providing free basic Internet on mobile phones. Under their recent expansion plans, Facebook will now allow any mobile operator to offer the service under this platform. Users will thus have access to free basic web access and Facebook’s network and messaging services. Within a year of its launch, Internet.org has provided this free service to over 9 million people across 17 countries. Facebook is looking to bring nearly 4.5 billion people online in Latin America, Asia, and Africa through the Internet.org initiative.

As part of their efforts to increase monetization on video ads, Facebook recently introduced a section on their website called Suggested Videos. Based on the videos that the user has watched, the Suggested Videos will provide other video suggestions. These videos will autoplay advertisements as well. An eMarketer report for 2014 reveals that YouTube had over 20% share of the US video advertising market. Facebook is working hard to compete with YouTube, but it will be a difficult task for Facebook considering that Google is doing wonders with YouTube.

Facebook is also increasing focus on their e-commerce capabilities. Recently, they began testing a new e-commerce feature that will let consumers purchase products from retailers while continuing to remain on Facebook’s site. They are building e-commerce sites with Facebook Pages allowing small- and medium-sized businesses to display their products. These product pages will also include a buy button so that users can purchase the products while remaining on Facebook’s site. As of now, Facebook is not charging any fees from the vendors for sales made through this feature. Some analysts believe that they may ultimately not need to charge anything considering the advertising growth that could happen instead.

Meanwhile, Facebook continues to invest in the development of innovative services. They are rumored to be working on a personal assistant service called Moneypenny that will work with the messenger app. Moneypenny would work within the app and connect the user with others to help complete tasks such as order products or services.

To augment the virtual reality space for Oculus, earlier this month, Facebook announced the acquisition of gesture control company Pebbles. The Israel-based startup is known for their technology that helps users see images of their arms and hands within virtual reality headsets, like those developed by Oculus. The move will help Oculus improve their virtual reality offerings. The deal is estimated to have cost Facebook $60 million.

Earlier this quarter, Facebook opened their photo sharing tool Instagram to advertisements. The recent change allows advertisers to use a new format to allow them to create slideshows of multiple photos, with links.

The market is pleased with Facebook’s moves. Their stock is trading at $95.21 with a market capitalization of $266.86 billion. It touched a record high of $99.24 last week.

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