In the age of mobile Internet, engaging in social media is no more limited to home PCs. The current milieu, where millennial thrive on staying connected endlessly and seek constant updates on what’s happening right at a given moment, has given birth to the phenomenon of online networking sites. Being a champion of this new line of online business, Facebook, Inc. FB certainly has a lot to gain from the booming mobile market.
The rapid increase in mobile usage is driving mobile advertising – the fodder for most online businesses. According to research reports, since 2014, mobile Internet usage has exceeded fixed Internet access. So the importance of mobile advertisements as a lucrative source of revenue for online companies including social media sites like Facebook is increasing.
It follows, then, that Facebook is focused on growing its mobile user base, improving users’ experience, growing their engagement and thereby generating higher revenue. A research report from eMarketer suggests that mobile is expected to be the key growth driver for advertisers in the digital age, and they are likely to increase their spending by 60% in 2015 to $64.25 billion and cross $158 billion by 2018. The projections are based on the assumption that mobile ads will make up about 22.3% of total advertising spending across the globe.
While Facebook’s ad revenues surged 40% during the second quarter of 2015, mobile ad revenues soared 74% during the same period and represented 76% of its total advertising revenue. eMarketer earlier predicted that Facebook's worldwide mobile revenues would reach 75% of its total revenue (or $7.39 billion) by 2016, a large part of which will be contributed by ad revenues, in our view.
Facebook intends to achieve this by increasing focus on emerging markets, where smartphone penetration is increasing rapidly and many users primarily rely on smartphones to connect to the Internet.
One of the pioneering strategies of the company to enter these markets is Internet.org. This project was initiated in partnership with major phone and equipment makers like Samsung, Nokia NOK, and Qualcomm QCOM in 2013 to increase Internet usage in developing countries. This may also have led to an upside in the mobile advertising business, which has grown manifold.
While Facebook has relatively high penetration in most developed markets like Japan, the U.K. and the U.S., there are several markets that are underserved and hold immense growth potential for the company.
According to a United Nations report released last year, around 60% of the global population is yet to be connected through the Internet. Hence, if Facebook is able to target this underpenetrated section through its Internet.org, it will set a lucrative platform for its advertisement business.
Nevertheless, the company’s latest plan already faces tough competition from Google’s GOOGL Project Loon. With this venture, Google aims to deliver Wi-Fi through giant floating balloons to rural areas and reportedly, Sri Lanka would be the first beneficiary of Google’s ambitious project.
Facebook currently has a Zacks Rank #3 (Hold).
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