Sign in or Register

Already a member?

Sign in

Or sign in with your account on:

Not a member yet?


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.

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.

Signup for our daily newsletter and get our best articles emailed right to you!

Results for FB
19 Sep 14 02:29:16
No hike > No crisis No Vote Scotland > No crisis Whats the next crisis @CNBC comes up with? $FB $TWTR $AAPL $TSLA $NFLX $GOOGL $QQQ $BABA
Gillian Bauer
19 Sep 14 02:24:54
RT @banlskc: Weibo Seen Poised For 'Strong Growth,' Alibaba Boost http://t.co/gn7hYBz71l #IBDNews via @IBDinvestors $WB $BABA $TWTR $SINA …
Carolyn B Miciano
19 Sep 14 02:21:35
How to use Probability in trading http://t.co/0sXoJiZylh $AMZN $FB $TWTR
Alexandros Yfantis
19 Sep 14 02:15:41
$FB expecting new highs and why not 100$. Important to hold above 73$ http://t.co/dd9E7YEJgz
Stock Wire
19 Sep 14 01:54:50
Facebook Inc To Benefit Most From Ad Dollars Shift, Twitter Second $FB http://t.co/ExtlZfCCPf
Investors Hangout
19 Sep 14 01:48:41
$BTU Stock Message Board Click Here: http://t.co/RYsvJqzAQA Also See: $NVDA $HPQ $IBM $FB ~
Eloy Rc
19 Sep 14 01:47:34
RT @jfahmy: My 2 Cents on the Alibaba IPO: http://t.co/qybKL1hZD7 $BABA $BIDU $FB $SPY $QQQ
Phil Hamby
19 Sep 14 01:34:01
@ChrisCuomo @CNN Multi-layered company, not just internet giant. Smoother IPO than $FB expected. Have trade order already in queue.
Steve Mahoney
19 Sep 14 01:31:28
@BrandonGlimcher @jimcramer No Correlation with $FB - Think impacts on $EBAY $AMZN (a little) - Neg and Halo Effect of Other Companies - Pos
Steve Mahoney
19 Sep 14 01:29:51
@jimcramer Wait or Go given the Prior $FB Execution Chaos on Exchanges?
19 Sep 14 01:24:05
When an online service is free, you're not the customer, You're the product @tim_cook 1 of the reason I will stick with $AAPL not $GOOG $FB
19 Sep 14 01:23:03
#Buy $DNAX #DNA #Energy #Drinks #New #CEO #Real #Experience > $FNMA $HEMP $PMCM $PHOT $PLPL $CBIS $JPM $GS $MS $TSLA $FB $TWTR $GOOG $MSFT
19 Sep 14 01:18:32
$FB Facebook's First Outside Investor Thinks Twitter Is Mismanaged: Is He Right? http://t.co/3pF5RpEP5d
19 Sep 14 01:18:31
$FB Yelp to Pay $450,000 Fine for Collecting Kids's Information - Analyst Blog http://t.co/TOnFmURmEb
Steve Mahoney
19 Sep 14 01:06:16
@ettucat @nyse The link with $FB is that the IPO Offering for Facebook was Executed as a Fiasco - Buying and Selling and Mass Confusion
Russell Barbour
19 Sep 14 01:03:44
Wow Super_trades has made over $2 M ILLION in the last year!! check out his chart http://t.co/EfuNMUT9XP $VIMC $LIVE $NQ $HURC $FB
19 Sep 14 00:12:10
$AMZN Stock Forum Click Here: http://t.co/rhxVB7rDdu Also See: $FB $GLD $GOOG $SGLB ~
19 Sep 14 00:10:58
$AAPL, $GS, $AMZN, $FB, $TWTR, $BIDU, $QIHU, $TSLA, $IBM stocks on focus tomorrow try us http://t.co/uIZAE2zpTP
Ohio Spot Light
19 Sep 14 00:01:00
Follow these folks on $FB and keep up to date with the #hottest new #trend http://t.co/DwFpNLKZIl
18 Sep 14 23:59:05
RT @bullandbearmash: Commented on: "Alibaba: An Opportunity Or The Opportunity" http://t.co/WjYtq7o7Us $BABA $AAPL $FB $GTAT
Tony Parker
18 Sep 14 23:51:43
RT @alphatrends: "@jfahmy: My 2 Cents on the Alibaba IPO: http://t.co/2cz1UXfKvg $BABA $BIDU $FB $SPY $QQQ" nice post Joe
paul bratby
18 Sep 14 23:50:12
Join me on #whatsapp on +34617893502 and win #socialmedia #stock #trades like these http://t.co/TjCyjd2Jpk free until november $FB
18 Sep 14 23:49:18
RT @TraderHMS: 268: Combining tactics and technique in your trading $BABA $SPY $QQQ $TWTR $FB #tradingtips http://t.co/2olfmnUmXC
Trading Wisdoms
18 Sep 14 23:45:59
RT @TraderHMS: 268: Combining tactics and technique in your trading $BABA $SPY $QQQ $TWTR $FB #tradingtips http://t.co/2olfmnUmXC
Paul W. Mahon
18 Sep 14 23:39:00
RT @ronin245: $BABA $168B cap @$68 trading @44X is $3.8bil revs? So $FB at $200B cap & 10B revs is trading at 10X ...such a deal $GS & $MS…
18 Sep 14 23:33:15
RT @ronin245: $BABA looks lie its going to be the "anti- $FB " ipo get ready for $100 http://t.co/KM97Hfj8PZ
David Skarica
18 Sep 14 23:33:03
RT @ronin245: $BABA $168B cap @$68 trading @44X is $3.8bil revs? So $FB at $200B cap & 10B revs is trading at 10X ...such a deal $GS & $MS…
Chasing Stars
18 Sep 14 23:32:32
$AGIO Bid Size Click Here: http://t.co/vIXoNMzH1N Also See: $BITA $ABX $COO $FB ~
Bull and Bear Mash
18 Sep 14 23:32:30
Commented on: "Alibaba: An Opportunity Or The Opportunity" http://t.co/WjYtq7o7Us $BABA $AAPL $FB $GTAT
18 Sep 14 23:32:13
$BABA looks lie its going to be the "anti- $FB " ipo get ready for $100 http://t.co/KM97Hfj8PZ
Stock Wire
18 Sep 14 23:29:44
Facebook Inc. (FB) Users Angered With The New 'Name Policy' Requirement $FB http://t.co/lK6PoHy9LM
18 Sep 14 23:28:31
9/19: OPEN SWING TRADES: $AAPL $FB $YHOO $PCLN $SPY http://t.co/UovPfc7QJy
BUZZ Just-In
18 Sep 14 23:18:06
Access curated tweets- high relevancy, less spam- Social Media Stocks http://t.co/ajElRTb2Qc $TWTR $LNKD $FB $GRPN $ZNGA
18 Sep 14 23:17:14
$BABA $168B cap @$68 trading @44X is $3.8bil revs? So $FB at $200B cap & 10B revs is trading at 10X ...such a deal $GS & $MS (greedy)
Websurfer Magazine
18 Sep 14 23:16:51
RT @WSJ: Sick of seeing old posts? Facebook is tweaking its news feed to show more timely updates: http://t.co/VAeBISqn6Y $FB
18 Sep 14 22:51:42
FB 77.00 Stock Charts $FB Facebook Inc. Cl A (NASDAQ) Last Updated: 09/19/2014 00:51:51 FB Stock Chart - 1 Mon http://t.co/VDQvMdGttu
18 Sep 14 22:48:38
@Reuters still hoping for a $FB or $ZNGA type IPO story on this one.
The Cardiac Kid
18 Sep 14 22:36:40
$FB - Li Na Retires From Tennis -- Update http://t.co/ZFT3HZ0c8C
Pathy Nkondolo
18 Sep 14 22:36:39
$FB - Li Na Retires From Tennis -- Update http://t.co/MrP0uES6I6
Trade Yodha
18 Sep 14 22:36:37
$FB - Li Na Retires From Tennis -- Update http://t.co/eG8yzEzrdc
18 Sep 14 22:36:35
$FB - Li Na Retires From Tennis -- Update http://t.co/dV9mPE7MxX
Solo traders
18 Sep 14 22:36:24
$FB - Li Na Retires From Tennis -- Update http://t.co/keOc83My4w
Tyler Bowman
18 Sep 14 22:36:21
$FB - Li Na Retires From Tennis -- Update http://t.co/j7yrChoeBu
john smith
18 Sep 14 22:36:20
$FB - Li Na Retires From Tennis -- Update http://t.co/WkU68vPsMg
Live Stock News
18 Sep 14 22:36:15
$FB - Li Na Retires From Tennis -- Update http://t.co/tANMtr7OHX
ADVFN Affiliate
18 Sep 14 22:36:13
$FB - Li Na Retires From Tennis -- Update http://t.co/ASoHa4u8y9
18 Sep 14 22:36:12
$FB - Li Na Retires From Tennis -- Update http://t.co/TeomUUa4V6
18 Sep 14 22:28:07
18 Sep 14 22:25:32
RT @jfahmy: My 2 Cents on the Alibaba IPO: http://t.co/qybKL1hZD7 $BABA $BIDU $FB $SPY $QQQ
Stock Forums
18 Sep 14 22:19:10
$TSPG Company Info Click Here: http://t.co/Dga0f6Tz9Y Also See: $FB $LOCK $TWTR $QLD ~
  +Follow December 10, 2013 3:00PM



blog comments powered by Disqus

About us

Equities.com is the most advanced interactive online social ecosystem for the financial industry, serving as a resource center and next-generation communication platform that connects self-directed investors with public issuers, market experts, and professional service providers and vendors. Registered members can leverage our exclusive proprietary research tools such as the Small-Cap Stars, which outperformed 90% of all small-cap mutual funds, and robust do-it-yourself E.V.A. research reports. The Equities.com Issuer Dashboard is the ideal tool to communicate and manage investor awareness campaigns to the investment community, as well as to access valuable resources to help your company grow.

Market Data powered by QuoteMedia.
Copyright © QuoteMedia. Data delayed 15 minutes unless otherwise indicated. Terms of Use.