Facebook Inc. (FB) recently entered into a partnership with the National Football League (NFL) per which it will feature short video clips in its U.S feeds.
Per the deal, NFL game highlights, studio analysis and fantasy updates will be posted on the timelines of select Facebook users from Dec 30, 2014. Meanwhile, Verizon Communications (VZ), which owns rights to provide live home-market feeds of NFL games to its wireless subscribers, as well as all playoff games and the Super Bowl through 2017 will sponsor the NFL news feeds on Facebook’s platform.
A 10 second advertisement for Verizon Wireless is anticipated to follow the NFL video which will run for approximately 33 seconds. A Verizon Wireless banner will also run at the bottom. The ad revenues will be shared between NFL and Facebook. However, the proportion in which the revenues will be shared has not been revealed.
Since Facebook has a treasure trove of user data from which it can determine user preferences, habits and choices, it is in a good position to determine the best recipients for this content. The highly-customized content is likely to lead to a more loyal user base thus driving engagement on the platform and attracting higher rates.
Of late, Facebook has been looking for professionally produced content as video advertising yields more revenue than the traditional text-and-image based ads. Ad revenues form a lion’s share of Facebook’s total revenue as is evident from the fact that in the third quarter of fiscal 2014, ad revenues of $2.94 billion comprised 92% of total revenue.
Per reports, Facebook is considering a proposal for entering into a similar deal with the National Basketball Association (NBA). In Oct 2013, Facebook’s rival Twitter (TWTR) inked a similar deal with the NFL per which highlights of games and other content were made available on the micro-blogging site.
We believe that Facebook’s growing mobile user base, Instagram’s increasing popularity, the frequent launch of new products and international expansion will boost the company’s top line and profitability going forward.
While competition from Yahoo (YHOO), Twitter, LinkedIn and Google remains a concern, Facebook is doing rather well generating revenue for itself. We note that both WhatsApp and Oculus are long-term growth opportunities that Facebook has sunk a ton of cash into. So investors will be watching how it monetizes these assets. But here too we probably need to keep the faith because management execution thus far has been superb.
Currently, Facebook has a Zacks Rank #3 (Hold).
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