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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.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer


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Results for FB
حٻۓ ٵݪٵݥٿڶٵڪۓ ‏
30 Jul 15 10:18:43
RT @JaberNaffa: $FB weekly chart: After daily gap fill, targeting 110$ then 114.84 #oil #gold $spx $spy $goog $aapl $bidu http://t.co/V…
أميره بحساآسي
30 Jul 15 10:18:41
RT @JaberNaffa: $FB weekly chart: After daily gap fill, targeting 110$ then 114.84 #oil #gold $spx $spy $goog $aapl $bidu http://t.co/V…
راكان العجمي
30 Jul 15 10:18:38
RT @JaberNaffa: $FB weekly chart: After daily gap fill, targeting 110$ then 114.84 #oil #gold $spx $spy $goog $aapl $bidu http://t.co/V…
Max
30 Jul 15 10:18:37
$LNKD one this is sure it will either go up or down atleast 20 points. not like $FB or $TWTR sideways action
Ian Nelson
30 Jul 15 10:18:36
Internet stocks back in favor... $NFLX and $AMZN up real nice... $FB up $3 from the lows today and $GOOGL up $12 from the lows today
محمد السبيعي
30 Jul 15 10:18:35
RT @JaberNaffa: $FB weekly chart: After daily gap fill, targeting 110$ then 114.84 #oil #gold $spx $spy $goog $aapl $bidu http://t.co/V…
فوفو العنزي
30 Jul 15 10:18:33
RT @JaberNaffa: $FB weekly chart: After daily gap fill, targeting 110$ then 114.84 #oil #gold $spx $spy $goog $aapl $bidu http://t.co/V…
العسيري
30 Jul 15 10:18:30
RT @JaberNaffa: $FB weekly chart: After daily gap fill, targeting 110$ then 114.84 #oil #gold $spx $spy $goog $aapl $bidu http://t.co/V…
عْبدالله
30 Jul 15 10:18:28
RT @JaberNaffa: $FB weekly chart: After daily gap fill, targeting 110$ then 114.84 #oil #gold $spx $spy $goog $aapl $bidu http://t.co/V…
الحلا
30 Jul 15 10:18:26
RT @JaberNaffa: $FB weekly chart: After daily gap fill, targeting 110$ then 114.84 #oil #gold $spx $spy $goog $aapl $bidu http://t.co/V…
Annie
30 Jul 15 10:18:25
$QQQ $GOOGL $FB $AAPL
كہلہي ذوقہہ ‏
30 Jul 15 10:18:23
RT @JaberNaffa: $FB weekly chart: After daily gap fill, targeting 110$ then 114.84 #oil #gold $spx $spy $goog $aapl $bidu http://t.co/V…
فواز المطيري
30 Jul 15 10:18:21
RT @JaberNaffa: $FB weekly chart: After daily gap fill, targeting 110$ then 114.84 #oil #gold $spx $spy $goog $aapl $bidu http://t.co/V…
الريم السهلي
30 Jul 15 10:18:18
RT @JaberNaffa: $FB weekly chart: After daily gap fill, targeting 110$ then 114.84 #oil #gold $spx $spy $goog $aapl $bidu http://t.co/V…
oobie
30 Jul 15 10:18:15
$FB stc 93's @ 1.9 +$1
مُنهمِك
30 Jul 15 10:18:14
RT @JaberNaffa: $FB weekly chart: After daily gap fill, targeting 110$ then 114.84 #oil #gold $spx $spy $goog $aapl $bidu http://t.co/V…
بنت عتيبه
30 Jul 15 10:18:12
RT @JaberNaffa: $FB weekly chart: After daily gap fill, targeting 110$ then 114.84 #oil #gold $spx $spy $goog $aapl $bidu http://t.co/V…
اُھِداب الشّمریے
30 Jul 15 10:18:10
RT @JaberNaffa: $FB weekly chart: After daily gap fill, targeting 110$ then 114.84 #oil #gold $spx $spy $goog $aapl $bidu http://t.co/V…
لطيفه
30 Jul 15 10:18:07
RT @JaberNaffa: $FB weekly chart: After daily gap fill, targeting 110$ then 114.84 #oil #gold $spx $spy $goog $aapl $bidu http://t.co/V…
PamphletShop
30 Jul 15 10:18:06
$SPNC Spectranetics http://t.co/UKZ3MRGmpH $AAPL $BAC $FB $SPY $GE $BABA $NFLX $C $FE $TSLA $F $T $UWTI $RAD $GILD $VXX $UA #FX #fx
ابراهيم البراهيم
30 Jul 15 10:18:05
RT @JaberNaffa: $FB weekly chart: After daily gap fill, targeting 110$ then 114.84 #oil #gold $spx $spy $goog $aapl $bidu http://t.co/V…
dominic
30 Jul 15 10:17:57
$FB looking to challenge unched
Claude Champagne MBA
30 Jul 15 10:17:19
RT @LucDupont: RT @CNBC: Just how many users did Facebook and Twitter gain in the last quarter? • $FB $TWTR http://t.co/Nlo9ic465G
mindmakesmatter
30 Jul 15 10:16:54
$FB getting ready 4 more upside http://t.co/ic4bZEfCYx
اسياء
30 Jul 15 10:16:47
RT @JaberNaffa: $FB weekly chart: After daily gap fill, targeting 110$ then 114.84 #oil #gold $spx $spy $goog $aapl $bidu http://t.co/V…
شبيب السبيعي
30 Jul 15 10:16:44
RT @JaberNaffa: $FB weekly chart: After daily gap fill, targeting 110$ then 114.84 #oil #gold $spx $spy $goog $aapl $bidu http://t.co/V…
بنت عتيبه
30 Jul 15 10:16:42
RT @JaberNaffa: $FB weekly chart: After daily gap fill, targeting 110$ then 114.84 #oil #gold $spx $spy $goog $aapl $bidu http://t.co/V…
جود الحزن
30 Jul 15 10:16:39
RT @JaberNaffa: $FB weekly chart: After daily gap fill, targeting 110$ then 114.84 #oil #gold $spx $spy $goog $aapl $bidu http://t.co/V…
ندؤوؤوؤوؤش
30 Jul 15 10:16:37
RT @JaberNaffa: $FB weekly chart: After daily gap fill, targeting 110$ then 114.84 #oil #gold $spx $spy $goog $aapl $bidu http://t.co/V…
متفائله حد السماء
30 Jul 15 10:16:35
RT @JaberNaffa: $FB weekly chart: After daily gap fill, targeting 110$ then 114.84 #oil #gold $spx $spy $goog $aapl $bidu http://t.co/V…
مضيفه طيران
30 Jul 15 10:16:32
RT @JaberNaffa: $FB weekly chart: After daily gap fill, targeting 110$ then 114.84 #oil #gold $spx $spy $goog $aapl $bidu http://t.co/V…
حسين السلطان
30 Jul 15 10:16:30
RT @JaberNaffa: $FB weekly chart: After daily gap fill, targeting 110$ then 114.84 #oil #gold $spx $spy $goog $aapl $bidu http://t.co/V…
حمد التويجري
30 Jul 15 10:16:28
RT @JaberNaffa: $FB weekly chart: After daily gap fill, targeting 110$ then 114.84 #oil #gold $spx $spy $goog $aapl $bidu http://t.co/V…
قہ ـلـب خہ ـجہ ـول ♡
30 Jul 15 10:16:26
RT @JaberNaffa: $FB weekly chart: After daily gap fill, targeting 110$ then 114.84 #oil #gold $spx $spy $goog $aapl $bidu http://t.co/V…
بدر اليامي
30 Jul 15 10:16:23
RT @JaberNaffa: $FB weekly chart: After daily gap fill, targeting 110$ then 114.84 #oil #gold $spx $spy $goog $aapl $bidu http://t.co/V…
عدنان بن صالح
30 Jul 15 10:16:21
RT @JaberNaffa: $FB weekly chart: After daily gap fill, targeting 110$ then 114.84 #oil #gold $spx $spy $goog $aapl $bidu http://t.co/V…
Grant Beasley
30 Jul 15 10:16:20
$FB close flat on the day or close enough? Fkn short term traders.
سما
30 Jul 15 10:16:19
RT @JaberNaffa: $FB weekly chart: After daily gap fill, targeting 110$ then 114.84 #oil #gold $spx $spy $goog $aapl $bidu http://t.co/V…
خلود السبيعي
30 Jul 15 10:16:17
RT @JaberNaffa: $FB weekly chart: After daily gap fill, targeting 110$ then 114.84 #oil #gold $spx $spy $goog $aapl $bidu http://t.co/V…
الزهره البيضاء
30 Jul 15 10:16:12
RT @JaberNaffa: $FB weekly chart: After daily gap fill, targeting 110$ then 114.84 #oil #gold $spx $spy $goog $aapl $bidu http://t.co/V…
جوليا بنت ابوها
30 Jul 15 10:16:08
RT @JaberNaffa: $FB weekly chart: After daily gap fill, targeting 110$ then 114.84 #oil #gold $spx $spy $goog $aapl $bidu http://t.co/V…
منصور المنصور
30 Jul 15 10:16:06
RT @JaberNaffa: $FB weekly chart: After daily gap fill, targeting 110$ then 114.84 #oil #gold $spx $spy $goog $aapl $bidu http://t.co/V…
نهار العجمي
30 Jul 15 10:16:04
RT @JaberNaffa: $FB weekly chart: After daily gap fill, targeting 110$ then 114.84 #oil #gold $spx $spy $goog $aapl $bidu http://t.co/V…
باسل الحربي
30 Jul 15 10:16:02
RT @JaberNaffa: $FB weekly chart: After daily gap fill, targeting 110$ then 114.84 #oil #gold $spx $spy $goog $aapl $bidu http://t.co/V…
الفرزدق التميمي
30 Jul 15 10:15:59
RT @JaberNaffa: $FB weekly chart: After daily gap fill, targeting 110$ then 114.84 #oil #gold $spx $spy $goog $aapl $bidu http://t.co/V…
مؤيد التميمي
30 Jul 15 10:15:57
RT @JaberNaffa: $FB weekly chart: After daily gap fill, targeting 110$ then 114.84 #oil #gold $spx $spy $goog $aapl $bidu http://t.co/V…
السرباتي
30 Jul 15 10:15:55
RT @JaberNaffa: $FB weekly chart: After daily gap fill, targeting 110$ then 114.84 #oil #gold $spx $spy $goog $aapl $bidu http://t.co/V…
عوِآإبّۂۂ مطٌيّريّۂۂ
30 Jul 15 10:15:52
RT @JaberNaffa: $FB weekly chart: After daily gap fill, targeting 110$ then 114.84 #oil #gold $spx $spy $goog $aapl $bidu http://t.co/V…
فهد القحطاني
30 Jul 15 10:15:48
RT @JaberNaffa: $FB weekly chart: After daily gap fill, targeting 110$ then 114.84 #oil #gold $spx $spy $goog $aapl $bidu http://t.co/V…
أحآآسيس ?!
30 Jul 15 10:15:45
RT @JaberNaffa: $FB weekly chart: After daily gap fill, targeting 110$ then 114.84 #oil #gold $spx $spy $goog $aapl $bidu http://t.co/V…
				
				
  +Follow December 10, 2013 3:00PM
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