Analysts believe it?s going to be a big year for advertising on Facebook, but investors continue to worry about engagement and monetization in the long term.
New video ad units to be unveiled later this year and the increased marketing presence of big-name brands have helped?buoy?optimism?that Facebook Inc.?s mobile and desktop revenue will continue to improve. Yet fears that competing services will eat into time spent on the social network have not entirely been allayed.
Using comScore data on U.S. desktop and mobile users, J.P. Morgan analyst Doug Anmuth found that Facebook?s total share of internet minutes increased to 15% (119.3 billion) from 12% (92.8 billion) year-over-year ? but at the same time, usage of Instagram, Twitter, WhatsApp and Snpachat combined increased to 2.5% from 0.6%.
However, though engagement remains a concern, Mr. Anmuth believes these services are only having a ?modest? impact on Facebook usage ? especially as mobile usage continues its steady climb and offsets declining desktop minutes.
He reiterated the firm?s overweight rating and price target of $35 on Facebook shares, citing their recent underperformance since first-quarter earnings were reported.
Anecdotal evidence gathered by J.P. Morgan also indicates that bigger brands, such as McDonald?s, Proctor & Gamble, Visa, Wal-Mart, Budweiser and Toyota have sought to establish a bigger presence on the social network during the first half of 2013 ? a trend that will only continue as Facebook?s ad offerings evolve.
In late May, analysts from both BMO Capital Markets and Jefferies LLC upgraded the stock, also citing the potential for advertising growth.
?We think there will also be strong demand for Facebook video ads in the News Feed, and CPMs will be significantly higher than for Facebook?s other ad formats,? wrote Mr. Anmuth, who?suggested?the cost per thousand views could reach as high as US$20 for the supposed 15-second videos.
?Our industry checks and the Financial Times suggest Facebook will begin rolling out auto-play video ads this summer, perhaps in July.?
This would coincide with Facebook?s most recent attempt at improving its advertising offerings for marketers. The company announced last week that, over the next six months, it would streamline the number of ad units from 27 to ?fewer than half? by?eliminating?redundancies, and?under-performing?units.
?We think this will ultimately help advertisers optimize their campaigns across desktop and mobile,? wrote Fidji Simo, product manager for ads, on the Facebook blog.
Mr. Anmuth also raised its revenue and EBITDA estimates for the second half of 2013 to US$6.53-billion and US$3.28-billion, respectively, and for?2014 to US$7.87-billion and US$3.84-billion,?on the basis of previously conservative Desktop revenue projections.
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