Facebook (FB, Financial) is experiencing a robust rampup in its mobile ad revenue that grew about 153% to $1.66 billion during the second quarter. The mobile ad revenue was zero in the same quarter last year but currently it contributes approximately 66%, while its desktop ad-revenue was up nearly 8% in the second-quarter 2014. Moreover, FB sees a strong momentum on mobile with more than 829 million people using Facebook every day while more than 650 million people using its services on mobile every day. Its ad revenue soared nearly 67% to 2.68 billion compared to the same period last year.
Facebook's mobile crusade
According to eMarketer, Facebook is expected to take about 8% of the digital ad market worldwide by the end of the year. Looking forward, Facebook is aggressively investing in three strategic growth areas such as capitalizing on the shift to mobile, growing the number of marketers using Facebook and building its ad products that should positively help the company generate broad-based growth for its shareholders and the investors.
Also the company looks solid on creating value for its community that comprises marketers and advertisers by improving quality of the ad experiences for its community through various initiatives such as a new ads preferences tool, interest-based advertising and improvements to News Feed design to reduce low-quality content.
Facebook is building the world’s first ad platform that is integrated with the personalized marketing at scale on multiple devices such as mobile, tablets, iPhone and iPad. The company has witnessed good progress in this regard and executing it well to get more marketers on this platform that will generate more ad revenue for the company going forward.
Enhancing the network
Moreover, the company has also launched Audience Network recently, one of its first efforts that will make the developers monetize on mobile platform as the company has received comprehensively a good response from the developers. Facebook remains concentrated to launch Audience Network in other regions as well that should generate good margins for the company in the remaining quarters.
FB is also focused on key marketer segments such as small and medium-sized businesses and brand marketers and making some fruitful investments on products such as ad-tech that will help these marketers get personalized on their ads more effectively. Facebook has more than 30 million active small and medium business pages, and over 19 million of these are active on mobile. The company now believes that this personalized marketing of scales will fetch remaining 11 million marketers to mobile ad platform. Also the company has more than 1.5 million active advertisers that continue to win market for the company.
Facebook has made remarkable progress in this regard and has recently acquired LiveRail, a leading online video advertising platform that enables customers like MLB.com and A&E Networks to monetize their video inventory efficiently. Facebook is investing heavily in LiveRail that should enhance its video ad on mobile across the world.
In addition, the company is involved with strategic initiatives such as “Facebook Fit” to engage this strong community. The company is also determined to deliver this initiative worldwide, and has formed its first European SMB cap. This initiative with the personalized ad platform should generate positive results for the company going forward.
Moreover, the social networking giant is also working closely with some larger brands such as Procter & Gamble (PG, Financial) and Gillette in accelerating scale, targeting and measurement capabilities to generate significant lift in both the message and ad recall for companies such as these; that should help the company fuel up its mobile ad revenue in the future. It is also working with agencies like IVS and Mediacom to successfully launch its Vector III razor to men in India.
Facebook has approximately 100 million Facebook users in India and 80% of this strength is on the mobile with a majority of these users having feature phones. This campaign has helped Gillette reach its target audience effectively with more than 60% of its targeted audience and produced significant lift in both the message and ad-recall.
Simultaneously, Facebook is also investing in the product enhancement with the new products such as website Custom Audiences that will help the marketers fetch its targeted audience to its websites, driving higher returns for all of its marketers. This product has been launched in both on web as well as on mobile and Facebook has experienced tremendous response from the marketers.
Besides, FB has launched a premium autoplay video ad this year to help marketers and brands spread their investment beyond TV, well integrated with the traditional reach and focus campaign with its unparalleled targeting abilities. Facebook has witnessed positive results from the dozens of campaigns it runs currently. Further, the company remains focused to spread this product to other regions as well. It is also experiencing solid demand for its Instagram as more and more marketers are displaying their ads on it.
Wrapping up
Facebook is currently trading at the trailing P/E of 97.25 and forward P/E of 37.12 with PEG ratio of 1.26 for the next five years, indicating sound prospects for the company going forward. Also Facebook has strong profit and operating margins of 23.78% and 44.44%, respectively. Besides the growing ROE of 15.51% and ROA of 15.24% reflects strong ability of the management to create wealth for is investors and shareholders.
