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Facebook (FB) Q3 Ad Revenues Grow Despite Russia Episode

Facebook’s FB blockbuster third-quarter 2017 earnings report clearly shows that there’s no stopping this tech juggernaut come what may (read: the Russian ad fiasco).

Facebook has been under fire from all quarters ever since the company revealed that Russian actors misused the platform to influence 2016 presidential elections outcome. However, this has not impacted Facebook’s performance so far.

Ad Revenues

Advertising revenues, which are the mainstay of the company’s top line, saw a 49% increase year over year to $10.1 billion in the third quarter of 2017. Total revenues grew 47% to $10.3 billion.

Mobile ad revenues gave it the much needed boost, surging 57% year over year to $8.9 billion, representing 87% of the total ad revenues.

Ad impressions grew 10%, driven by increasing mobile ad impressions on both Facebook and Instagram platforms.

Average price per ad increased 35% from the year-ago quarter. The surge reflects increasing demand for Facebook’s platform for displaying ads.

What’s Driving Advertisers to the Platform?

Facebook and Alphabet GOOGL dominate the U.S digital ad market. Per the latest report from eMarketer, in 2017, both these companies are expected to hold 63.1% share of the total domestic digital ad market, up from the earlier expected number of 60.4%.

Their target advertising capabilities draw advertisers to these platforms, adds eMarketer. A giant user base is another major draw. Facebook has over 2 billion users while its subsidiary, Instagram has over 800 million users.

Both platforms also have very high daily active users (Facebook has 1.37 billion DAUs and Instagram has 500 million DAUs). High daily activity is nothing short of a goldmine for advertisers. Facebook and Instagram boast over 6 million and 2 million advertisers, respectively.

Facebook’s digital push is another big factor. The increase in digital/mobile advertisement stems from the fact that these ads have far more ad recall value than other mediums. Since marketers are shifting their focus to mobile, Facebook is enthusiastically monetizing this shift.

Ad products like Dynamic Ads and Instagram Stories are expected to drive digital ad revenues in the near term. In the past few months, Facebook has launched a couple of new products to make its ads more effective and relevant. These include Value Optimization and Lookalike Audience.

Facebook, on its conference call, said that live videos lead to more (nearly 10 times) interactions/comments compared with the other videos. In the last reported quarter, Facebook has been allowing advertisers to run ads on videos alone unlike earlier when ad breaks were only eligible for News Feed.

COO Sheryl Sandberg stated that the results have been good with over 70% of Ad Breaks (up to 15 seconds) on Facebook and Audience Network being viewed till the end with sound on most of the time.

To further consolidate its position, the company is now focusing on live video and the series of live streaming deals are a step in that direction. Facebook has also labeled video as a “megatrend” similar to mobile. Facebook has adopted the “mobile-first video ad strategies” for advertisers.

In August, the company launched Watch, a dedicated tab for video viewing. As cord cutting grows, live streaming presents a huge opportunity for growth. The company, like tech giants such as Apple Inc AAPL and other social media giants like Snap Inc SNAP, is focused on grabbing a big share of this fast growing market.

Prospects

Facebook has, for long, maintained that ad revenues will decelerate as ad load reaches saturation.

However, we believe that increasing user engagement and  investments to improve effectiveness and relevance of ads will help Facebook to lure more advertisers.

Per emarketer, in 2017, Facebook’s mobile ad revenues will be $15.3 billion, representing 88% of the company’s total ad business. This will push Facebook’s share of the U.S. mobile ad market to 26.8%.

Zacks Rank & Share Price Movement

At present, Facebook carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Year to date, Facebook’s shares have generated a return of 55.5% compared with the industry’s gain of 29.4%.

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