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With Twitter and Facebook, Squeezing More Ad Revenue is Key

  +Follow December 10, 2013 3:00PM
Tickers Mentioned:

On Dec. 10 Facebook Inc. (FB) gained 3 percent in early trading on news that video advertisements would be more prominent in users feeds. At the same time, rival social media upstart slipped Twitter Inc. ($TWTR) popped nearly 6 percent by midday (representing a 16-percent uptick over the last two trading days) after unveiling a new advertising product called Tailored Audiences.

With social media investors, any news of more thoroughly integrated advertising supposedly translates into higher revenues. After all, the more successful and well-targeted an ad is, the more Twitter or Facebook can charge for them. When advertising volume is increased as well, so will the revenue.

But at some point the rubber hits the road, and excessive advertising has to turn off users. Or will it?

Targeted Advertising: Bend ‘Em But Don’t Break ‘Em

According to a 2012 report by YouGov and Upstream Systems, one on five Americans claim they would quit a social media service cold turkey if subjected to too much advertising. For Twitter and Facebook, it would seem to be a simple balance sheet problem. If increased revenue from better-targeted and more intrusive advertising offsets the loss in usage, then the ramped-up advertising is a go. However, if the alienation of one in five customers’ does not make up the difference, scale back.

Twitter claims 218 million active users and Facebook 1.2 billion. While Twitter has yet to report earnings, and thus their user-derived revenue it is a little more difficult to parse. But Facebook has been public for a year and a half. Their earnings reports reveal the company is notching a steadily increasing amount of money per set of eyeballs.

Last quarter, Facebook generated approximately $4.19 per American/Canadian user in revenue, a 14 percent uptick from the previous quarter (while overseas markets, are less profitable, the increases in revenue are similar.) That percentage increase is no small change, and a necessity for Facebook to continue growing. Facebook has reached near total saturation as far as acquiring new users go – at 1.2 billion, there’s simply not much more of the population to get onto Facebook for the first time.

Facebook has worked instead to increase revenue per-user, doing so via three methods: one, get existing users to use the service more; two, increase mobile advertising share; and three, better target the ads. The last two involve an increase in the presence of advertising that has so far proven effective in increasing revenue.

The Established Social Media Company Playbook: When You Can't Grow Anymore, Milk the Users You Have

This method works, until too many users have enough and leave the service. Of course, what people say they will do and what people actually do are often diametrically opposed. And that seems to be the case: neither Twitter nor Facebook attributes any sizable dropoff form the increasingly prevalent advertising. Curiously enough, most people actually seem to enjoy it: the same Upstream study that claimed 20 percent of users would flee a site for excessive advertising reveal 69 percent of users enjoy ads, and enjoy them most when they're well-targeted.

Make no mistake, undisputed social media king Facebook is slowing. Facebook’s growth with young users is dissipating, the admission of which caused a sharp drop-off after an otherwise triumphant Q3 earnings report. Facebook has attempted to shore up their loss of youth appeal by acquiring Instagram, and this should work for awhile.

But what will keep Facebook chugging along, and help Twitter sustain their march to all-time highs is not to pare back advertising at all, and to simply better target ads. Which is what both are doing, with Twitter (and its multiple revenue streams) looking especially cutting edge in this regard.

While other smaller social media companies like Snapchat are ratcheting up the user growth to increase valuation, already-established behemoths Twitter and Facebook are taking a different track, and doing what they need to do: not increase the user base, or play into concerns advertising will alienate users. Rather, their goal is to get as much money as possible from the users they have. And for now, it's resonating with investors.

For the time being, the strategy is proving incredibly successful, and there is little reason to do otherwise. Facebook hit $50.41 a share on Dec. 10, continuing a week-long uptick. On the same day Twitter touched its all-time high, hitting $52.10 a share, or double its IPO price.

Results for FB
The Good Trader
16 Apr 14 11:31:06
$FB Facebook Inc's Newest Big Idea http://t.co/uU16WAS4sa
Prescott Lewis
16 Apr 14 11:31:04
Looking for the next $PPS $LPLA $PANW $FB #NASDAQ http://t.co/QHb9AsWmtj
Stock Wire
16 Apr 14 11:28:52
Facebook Inc's Newest Big Idea $FB http://t.co/C4yIhDBP6d
Brecken Khamba
16 Apr 14 11:26:27
Best research on #stocks such s $ROC $ADT $RPAI $FB #overvalued http://t.co/NwmA5Z8Rj7
16 Apr 14 11:26:18
If $FB which I love long term was not such a bag of shit today I would be temped to buy some other techs here.
Andrew Mundell
16 Apr 14 11:25:51
RT @montalvo_d: Instagram Kicks Off Its First Big Spam Purge http://t.co/vG3ceOzplo via @recode $FB
Hart Lambur
16 Apr 14 11:25:49
RT @openfolioapp: #MobilePayment war brewing? $AMZN's Bezos tells payment team “go faster". $FB close to e-money approval. http://t.co/kQ42…
no dice
16 Apr 14 11:24:41
RT @TraderHMS: Trading Card 287: You must avoid overconfidence and euphoria in your trading $FB $TWTR $P $TSLA $NFLX $QQQ $SPY http://t.co/…
Squawk on the Street
16 Apr 14 11:24:01
RT @montalvo_d: Instagram Kicks Off Its First Big Spam Purge http://t.co/vG3ceOzplo via @recode $FB
16 Apr 14 11:23:51
#MobilePayment war brewing? $AMZN's Bezos tells payment team “go faster". $FB close to e-money approval. http://t.co/kQ423L7zzn via @DelRey
David Montalvo
16 Apr 14 11:23:47
Instagram Kicks Off Its First Big Spam Purge http://t.co/vG3ceOzplo via @recode $FB
Penny Stocks Blog
16 Apr 14 11:21:23
RT @Oriondhc: Early Movers: $HART $OODH $HEMP $SGMS $GM $FNMA $MGHL $AOL $GG $WMT $NEM $ABX $IAU $FB ~ #MMJ #stocks #pennystocks
Stock Herald
16 Apr 14 11:17:07
$FB: Facebook Incs Newest Big Idea http://t.co/FFJFoO8wug
Rajan Soni
16 Apr 14 11:16:22
RT @TheStreet: $BV Looks to Twitter, Facebook In $9 million FeedMagnet Deal http://t.co/ONyZCRlnzW $FB $TWTR
Issaquah Capital
16 Apr 14 11:15:09
added some "Smart Dudes in Black Hoodies" $FB on weakness here.. looking to get long more before earnings - Mo Greene
16 Apr 14 11:15:04
$FB Facebook Inc (NASDAQ:FB): It Is About The Money http://t.co/dkVPszqGrK
Ray Dipre
16 Apr 14 11:14:43
$FB great set up on 5 minute chart to go long
Patrick Kabir
16 Apr 14 11:14:17
@elenaneira in all fairness I am glad $FB is building a real business model not ad driven, maybe I will starting using @facebook again
16 Apr 14 11:13:30
$BV Looks to Twitter, Facebook In $9 million FeedMagnet Deal http://t.co/ONyZCRlnzW $FB $TWTR
Amy Alvarez
16 Apr 14 11:13:24
#Stocks you might want to hold onto $MDVN $CVA $CCE $FB View now http://t.co/U8cvRGLg0B
16 Apr 14 11:13:19
RT @andrewnyquist: "How Standing On Your Head Can Reduce Investor Bias" http://t.co/NIJWbkUbBh by @KimbleCharting $SPY $QQQ $GOOG $TSLA $FB…
16 Apr 14 11:12:15
$FB long here, give it another try 59,05$
16 Apr 14 11:11:50
$GNW class action lawsuit attempt rejected by judge. $AAPL $GOOG $FB http://t.co/HnFhC5x9jJ
Phil Hamby
16 Apr 14 11:11:08
Like Ten Teslas Combined: Analyst Pegs Alibaba Valuation at $245 Billion http://t.co/Pp5M9DWwjx via @WSJMoneyBeat $YHOO #alibaba $TSLA $FB
16 Apr 14 11:11:01
$FB long again 59.13 ..intraday play
16 Apr 14 11:10:54
Done for the day, way over traded and trading these small size days, commission is nearly 25% of my profits. $FB $NQ $VGNX $PBR $INSM $YHOO
16 Apr 14 11:10:13
$FB - Facebook Incs Newest Big Idea -> http://t.co/ay7rifFHJ9 #stock #stocks #stockaction
16 Apr 14 11:10:10
#PennyStock #Options Traders : Join Us Now in Our Chatroom ( 100% FREE & Profitable ) ... http://t.co/dr0HB0ThxC $AAPL $BIDU $FB $TWTR...
16 Apr 14 11:10:07
#PennyStock #Options Traders : Join Us Now in Our Chatroom ( 100% FREE & Profitable ) ... http://t.co/3nyFn1PRXN $AAPL $BIDU $FB $TWTR...
Daily Delphi
16 Apr 14 11:09:57
Forecast: #Facebook $FB close at 59.36 from Community on Apr 16, 2014 #DailyDelphi http://t.co/ECHcTVRybr
16 Apr 14 11:09:37
The Future of #Facebook May Not Say ‘Facebook’ $FB http://t.co/ppS7BcBsKV
Ernest Partington
16 Apr 14 11:09:07
$FB: Facebook to keep building products; Zuckerberg urges patience on resul... http://t.co/W5luzGMwf3
Patrick Kabir
16 Apr 14 11:08:28
@elenaneira its savvy $FB is getting deeper into software (login for tons of apps). hardware (Oculus), +1BN ppl for $ (better than ad $)
John Earl Burnett
16 Apr 14 11:07:51
That's the million dollar question Carol! They're dead in the H20 w/o Alibaba $. Mayer's needs to follow $GOOG & $FB paths.. @caroljsroth
Fergus Hillo
16 Apr 14 11:05:20
Get great research on stocks $NUS $WTW $SWI $FB #investing http://t.co/hkq4FyashV
Carlos Carrasco
16 Apr 14 11:05:15
BOOM! Beige book delivers/ $qqq $fb $gogo $panw $feye
Patrick Cowher
16 Apr 14 11:05:04
$FB Yahoo Shows Positive Signs With Q1 Earnings, Stock Up http://t.co/yzf5SOZdol
16 Apr 14 11:05:02
$FB will trade in the green at 4pm. The run continues.
Fergus Hillo
16 Apr 14 11:04:55
Get research on $AWH $COO $KMX $FB #wealthmanagement http://t.co/dQUGkpAhIy
Ray Dipre
16 Apr 14 11:04:14
$FB run run run run run run
16 Apr 14 11:04:07
$FB cup and handle on the daily 5 min
16 Apr 14 11:02:36
$OODH - If you make reasonable offers on ORION DHC, Inc you might get in today. Shareholders know what they own. #MMJ #jobs #stocks $FB $P
16 Apr 14 11:02:24
Early Movers: $HART $OODH $HEMP $SGMS $GM $FNMA $MGHL $AOL $GG $WMT $NEM $ABX $IAU $FB ~ #MMJ #stocks #pennystocks
16 Apr 14 11:02:16
40.0% decreased bearish conversations in $FB in the past 3 hours.
Stock Herald
16 Apr 14 11:01:35
$FB: Facebook to keep building products; Zuckerberg urges patience on resul... http://t.co/xEhprNpIMa
Kym L
16 Apr 14 11:00:29
$FB basing nicely intraday might try again...
Jeff Hawks
16 Apr 14 10:59:59
I think $AAPL $BA $ZNGA and $FB could have huge pops next when they report earnings next week! Giddy-Up!
Andrew E.
16 Apr 14 10:59:23
@jimcramer how great would a $FB Virtual Reality online casino be? E-commerce, $ZNGA PRN, and who else knows in the mix. $Fat Stacks Jesse!
Rudi Shaverek
16 Apr 14 10:58:43
Buy or sell? $DEI $ROK $STWD $FB #newsletter http://t.co/E3FDQInxeg
  +Follow December 10, 2013 3:00PM



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