Facebook Predicted To Post 60% Rev Gain, News Ads Power Growth

Facebook made big news last month with the relaunch of Atlas, extending its ad serving and targeting to the wider Web. But the social network is still generating strong revenue growth from advertising within its own walls. When the company reports third-quarter results Tuesday, analysts expect it to post a 60% gain in revenue from a year ago to $3.1 billion.

Earnings are forecast to come in at 40 cents a share, from 25 cents in the year-earlier period.

News feed ads — especially those displaying on mobile devices — continue to power Facebook’s sales growth. Mobile advertising alone is expected to increase to 65% of total advertising of $2.85 billion in the third quarter, up from 62% in the prior quarter, according to a research note by RBC analyst Mark Mahaney.

A key part of Facebook’s mobile advertising surge has been its app install ads. Along with unpublished page post ads and standard right-column ads, Facebook ad partner Nanigans estimates the three formats accounted for 95% of total ad spend through its platform in the quarter. The launch of Facebook’s Audience Network, which allows marketers to deliver targeted ads to third-party apps, has also helped boost mobile ad gains.

Data from digital agency 3Q Digital, based on 650 million impressions, showed mobile impressions on Facebook increased 54% in the quarter, with an 85% increase in the click-through rate, and a 40% drop in mobile cost-per-click. But 3Q Digital expects the CPC to increase over the holiday season and the international rollout of the Audience Network this month, as more advertisers compete for app inventory.

Overall, Nanigans estimates Facebook’s click-through rate across desktop and mobile nearly tripled to 0.56% from 0.19% a year ago. The average CPC increased 30% to 53 cents from 41 cents, while CPMs overall increased nearly fourfold to $2.98 from 77 cents a year ago, and were up 80% from the second quarter.

The shift of advertising to mobile devices reflects the underlying change in how people access the social network. While Facebook’s desktop traffic was flat from a year ago in the third quarter, the number of unique visitors via mobile grew 35%, according to comScore. This is a positive indicator for overall MAU (monthly active user) growth,” wrote Mahaney. He estimates that figure grew 13% to 1.34 billion globally in Q3.

During Facebook’s earnings call Tuesday, analysts will also look for any insight on newer revenue initiatives like video advertising and advertising on Instagram. The company began testing autoplay video ads in the news feed last fall and has been rolling out the format slowly in the last year to avoid a user backlash.

The same goes for the image and video ads on Instagram. To date, Facebook has only said that early campaign results in both cases have been positive, without providing further detail. “Facebook still has largely untapped opportunities in video and Instagram advertising,” noted Macquarie Securities analyst Ben Schachter.

Mahaney estimates that Instagram ads alone could add another $1.3 billion to Facebook revenue in 2015. The prospect of generating revenue from WhatsApp, which the social network acquired earlier this year for $19 billion, is even further out. That’s especially true because Facebook has pledged not to introduce ads on WhatsApp. Even so, analysts expect the company to eventually make money from the messaging app’s user base of more than 600 million.

1 comment about "Facebook Predicted To Post 60% Rev Gain, News Ads Power Growth".
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  1. Mike Greco from Indy App Systems, October 28, 2014 at 2:07 p.m.

    Facebook played it smart the last few years, not molding its burgeoning mobile ad business on the increasingly stale efforts in mobile advertising by Google, but focusing instead on mimicking the innovative track records of Airpush, Tapjoy and other ad networks/platforms that we'll still be talking about in years ahead when AdMob, iAd, and the other feeble giants are practically fossils of mobile advertising.

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