Facebook Inc. FB is the most preferred medium for digital advertisements, per a latest survey by New York-based investment firm Cowen.
The survey conducted on 50 U.S. ad buyers revealed that 41% of the respondents preferred Facebook video for launching a new ad campaign compared to 25% who opted for TV and 10% who went for Alphabet’s GOOGL YouTube.
Analysts at Cowen believe Facebook will emerge as the digital ad leader, replacing Google, given the growing popularity of video advertisements and its photo-sharing application, Instagram.
Notably, 96% of the respondents preferred Instagram Stories for advertisements compared to just 4% who backed the company’s competitor Snap Inc. SNAP.
The firm also predicts Facebook and Instagram’s ad budgets to increase in 2018 and 2019, while that of Google Ads will decline.
Per market research firm eMarketer, Facebook and Google dominated the U.S digital ad market in 2017 with 63.1% share.
Facebook has gained 49.4% in the past year, substantially outperforming the industry’s 25% rally.
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What’s Attracting Advertisers to the Platform?
Facebook has witnessed significant traction in online and mobile advertising spending in a short span of time. We believe Facebook’s focus to develop new ad products and making them more relevant and effective is yielding positive results. The company is using machine learning and automation to help advertisers reach the target audience.
Moreover, the company’s user base continues to grow at a significant pace driven by new features and tools that improve engagement. The company’s giant user base of over 2 billion and its subsidiary Instagram’s more than 800 million users are a major draw for investors.
Besides, Facebook and Instagram’s daily active users (DAUs) of 1.37 billion and 500 million respectively are nothing short of a goldmine for advertisers. Notably, Facebook and Instagram boast over 6 million and 2 million advertisers, respectively.
In the third quarter of 2017, ad revenues, which are the mainstay of the company’s top line, grew 49% year over year to $10.1 billion while mobile ad revenues were up 57% to $8.9 billion. Ad impressions grew 10% due to increases in mobile impressions on both Facebook and Instagram platforms.
Most importantly, the 35% surge in average price per ad reflects increasing demand for Facebook’s platform for displaying ads.
Facebook’s digital push is another big factor. It intends to capture the opportunity presented by ever-increasing video viewing on social media platforms.
Last month, the company announced changes in video policies, which include distribution of videos on the platform, ad breaks and testing of pre roll ad format. Two new metrics that include Ad Break impressions and Ad Break CPMs at the video level were also introduced to help advertisers gauge performance.
With online video being the most lucrative component of digital advertising, Facebook is trying to incorporate more video-oriented content to gain revenues. We believe that increasing user engagement and investments to improve effectiveness and relevance of ads will help Facebook to lure more advertisers.
Zacks Rank & A Key Pick
Facebook carries a Zacks Rank #2 (Buy).
A top-ranked stock in the broader technology sector is NVIDIA Corporation NVDA, sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks Rank #1 stocks here.
Long-term earnings growth rate for NVIDIA is projected to be 10.3%.
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