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With Twitter and Facebook, Squeezing More Ad Revenue is Key

  +Follow December 10, 2013 3:00PM
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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
ang_byrne
23 Apr 14 03:09:38
RT @CNBC: Facebook reports earnings after the bell. What to watch: http://t.co/LCVcODpb9N (via @Recode) $FB
LXM Group
23 Apr 14 03:06:42
RT @CNBC: Facebook reports earnings after the bell. What to watch: http://t.co/LCVcODpb9N (via @Recode) $FB
BlackCentaurGPW
23 Apr 14 03:06:27
$FB Company Ratios #chart #stocks http://t.co/OYUaJ8e7QP
BlackCentaur
23 Apr 14 03:06:27
$FB Company Ratios #chart #stocks http://t.co/GNXgbJS9PQ
World Business News
23 Apr 14 03:06:00
RT @CNBC: Facebook reports earnings after the bell. What to watch: http://t.co/LCVcODpb9N (via @Recode) $FB
Biashara News
23 Apr 14 03:05:55
RT @CNBC: Facebook reports earnings after the bell. What to watch: http://t.co/LCVcODpb9N (via @Recode) $FB
BlackCentaurGPW
23 Apr 14 03:05:21
$FB Company Overview - Q1 2014 #earnings after US close #chart #stocks http://t.co/oG22inr7IG
BlackCentaur
23 Apr 14 03:05:21
$FB Company Overview - Q1 2014 #earnings after US close #chart #stocks http://t.co/jrTNs5CPd5
Lisa Abrahamsson
23 Apr 14 03:05:10
RT @CNBC: Facebook reports earnings after the bell. What to watch: http://t.co/LCVcODpb9N (via @Recode) $FB
Wolf
23 Apr 14 03:04:57
RT @CNBC: Facebook reports earnings after the bell. What to watch: http://t.co/LCVcODpb9N (via @Recode) $FB
Dan Nathan
23 Apr 14 03:04:28
Too Many Options: $AA, $EEM, $FB, $S, $AAL http://t.co/JEld0OiEav @EnisTaner
Andrew Mundell
23 Apr 14 03:04:18
RT @CNBC: Facebook reports earnings after the bell. What to watch: http://t.co/LCVcODpb9N (via @Recode) $FB
DR JAMES CABOT
23 Apr 14 03:03:57
RT @CNBC: Facebook reports earnings after the bell. What to watch: http://t.co/LCVcODpb9N (via @Recode) $FB
Trad3rs
23 Apr 14 03:02:43
“@CNBC: Facebook reports earnings after the bell. What to watch: http://t.co/whiIKva6UC (via @Recode) $FB”
CNBC
23 Apr 14 03:02:01
Facebook reports earnings after the bell. What to watch: http://t.co/LCVcODpb9N (via @Recode) $FB
12Stocks.com
23 Apr 14 03:00:55
Weekly Nasdaq100 #Stocks Trend $MU $NFLX $ILMN $TSLA $SNDK $REGN $VRTX $AVGO $CHTR $ALXN $BIIB $GILD $FB $MNST @ http://t.co/wz4pxpINCJ
12Stocks.com
23 Apr 14 03:00:53
Weekly S&P100 #Stocks Trend $GILD $FB $BMY $HAL $MS $CMCSA $HD $AMZN $APA $FDX $MMM $UNP $UPS $MA $EMR $CVX @ http://t.co/cKkr8ctphu
12Stocks.com
23 Apr 14 03:00:53
Weekly S&P100 #Stocks Performance $GILD $FB $BMY $HAL $MS $CMCSA $HD $ABBV $AMZN $MET $APA $AMGN $PFE $FDX more@ http://t.co/cKkr8ctphu
Florent Stroppa
23 Apr 14 03:00:18
Hungry Tech Giants: 15 Years of Acquisitions | http://t.co/M3MkFW4Fq9 http://t.co/NyYVybM4jH $GOOG $APPL $FB
BlackCentaurFX
23 Apr 14 03:00:10
$FB Company Overview - Q1 2014 #earnings after US close #chart #stocks http://t.co/LmlvDBjdeL
22ofTheMonth
23 Apr 14 03:00:05
Interested to see what $fb does today. Personally I think earnings will be a positive story but I have no basis other than gut feel.
Christopher
23 Apr 14 02:56:50
RT @MarketWatch: Facebook $FB reports on Wednesday. What to look for: http://t.co/VJY7Fm0MoL #EarningsWall
Mari Keith
23 Apr 14 02:54:38
#Stocks you might want to buy $FB $HRB $CVI $S #equity http://t.co/XPOUhIbiWL
stocknews247
23 Apr 14 02:47:19
$FB - Facebook accounts for 51% of social logins in North America -> http://t.co/CshnAi0zQG #stock #stocks #stockaction
stocknews247
23 Apr 14 02:47:15
$FB - [video] Does Apple Have Wearable Tech’s Next Big Thing? -> http://t.co/UCyOPT2L8p #stock #stocks #stockaction
Laci Jack
23 Apr 14 02:41:53
$PLL Get more info on $FLS $BXP $FB #financialnews http://t.co/pJUWXvyghW
Luther Black
23 Apr 14 02:27:27
Top #Stocks today. Find out why. $CYT $JLL $MUR $FB #overvalued http://t.co/J158fJ5jo0
Scott Redler
23 Apr 14 02:27:04
We will also look at how some names are behaving through #earnings & go over technicals & opportunities for $aapl & $fb
ORION DHC, Inc $OODH
23 Apr 14 02:19:39
$OODH - Fake wall at $0.0309 ? Give it some time... sellers are getting run-off faster than that $FB Hoodie on Wall St. #invest
TCG Signals
23 Apr 14 02:19:31
RT @BrendaKelly_IG: The IG mid-week webinar starts at 12.30pm. Looking ahead to $AAPL $FB earnings. #FX #gold and more. Register here: http…
Investor Wand
23 Apr 14 02:15:28
Spencer Wang of Credit Suisse thinks $FB is worth $87:http://t.co/HiVNUbSytY
zhenghao
23 Apr 14 02:12:21
Excited for tonight's #Facebook Q1 announcement 😃 $FB
LoveStockNews
23 Apr 14 02:12:19
$FB - [video] There Is No Repeat of the 2000 Tech Bubble: Medecin -> http://t.co/tow9yYbsBn #stock #stocks #stockaction
Stock Herald
23 Apr 14 02:12:09
$FB: Business events scheduled for Wednesday http://t.co/4TfFgB7NM4
LoveStockNews
23 Apr 14 02:12:02
$FB - Premarkets: Waiting for big tech earnings -> http://t.co/3J3VNJ7MaB #stock #stocks #stockaction
Joaquin Guerrero
23 Apr 14 02:11:54
RT @craigbuj: China Mobile 3G subs +97%y/y, SMS usage -20%y/y, Data +84%y/y $CHL $AAPL $FB #whatsapp #wechat @asymco @stevesi http://t.co/v…
Leigh Riley
23 Apr 14 02:11:30
RT @DavidMadden_IG: .@BrendaKelly_IG is holding a webinar at 12.30pm today, covering #FOREX $AAPL $FB $FX #GBP #EUR register here: https://…
Pearline Smiley
23 Apr 14 02:09:28
#Stock Watchlist you should be looking at $ROL $BWA $KSU $FB #liquidity http://t.co/pqUJHBinW6
Don Looney
23 Apr 14 02:06:58
Good Morning! $FB earnings day, and buying $KNDI. Should be fun.
minimalexx
23 Apr 14 02:05:49
Mobile ad spending by company 2011-2015 (source: eMarketer, 2013). $TWTR $AAPL $P $GOOG $GOOGL $FB http://t.co/0ymEF3HMHd
Bart Ghesquière
23 Apr 14 02:04:11
RT @cc_ipg: FT graphic of the day: the outlook for Facebook http://t.co/aZs3ZugD5X $FB http://t.co/et070aLRb5"
Equities.com
23 Apr 14 02:03:35
Tsunamiball: The Newest Iteration of Fear and Loathing in Silicon Valley? $FB $TWTR $goog $yhoo http://t.co/aLNX2JqI0e
Christian Magoon
23 Apr 14 02:01:10
RT @Benzinga: #IPO #ETFs Seek To Capture New Listings And Top #Performers $ALLY $FB $FPX http://t.co/gIvO66W6ex @fabiancapital
minimalexx
23 Apr 14 01:59:22
Russian gov to control f Telegram & vKontakte http://t.co/SIqXrMwAei & http://t.co/P78er9uFFm Would prefer $FB, Whatsapp and NSA any day.
Calloway Domville
23 Apr 14 01:52:54
$SBUX Are you looking to buy $TROW $AIZ $FB #wallstreet http://t.co/42tvExbHZT
Tim Kelleher Corp
23 Apr 14 01:49:56
$FB Trading $63.62 through yestetdays highs early pre market - long
Chris Beauchamp
23 Apr 14 01:47:39
RT @BrendaKelly_IG: The IG mid-week webinar starts at 12.30pm. Looking ahead to $AAPL $FB earnings. #FX #gold and more. Register here: http…
Brenda Kelly
23 Apr 14 01:46:59
The IG mid-week webinar starts at 12.30pm. Looking ahead to $AAPL $FB earnings. #FX #gold and more. Register here: https://t.co/CBZ9kWF9tV
$FB Stock Watch
23 Apr 14 01:45:05
Facebook Inc. (FB) and Zynga Inc (ZNGA) Dominates Tech Sector with Micron ... http://t.co/t611RWVLNL $FB
$FB Stock Watch
23 Apr 14 01:45:05
Facebook Inc (FB) Earnings: What To Expect http://t.co/MPnIqiZjC5 $FB
				
				
  +Follow December 10, 2013 3:00PM
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