Is Facebook A Threat To YouTube In The Booming Online Video Ads Market?

FB: Facebook logo
FB
Facebook

Online video market has moved to the fore front of advertising over the past five years. Recently, mobile video viewing has further added impetus to this segment, primarily due to advent of mobile technology and the widespread adoption of Smart Phones and Tablets. Due to these factors, the incumbent online video companies, i.e., Google‘s YouTube (Nasdaq:GOOG) and Facebook (Nasdaq:FB) continue to aggressively pursue this vertical to grab more pageviews, and in the process attract more ad dollars. While YouTube is the undisputed leader in the market, Facebook is fast becoming more popular due to better user engagement. In this note, we explore the online video ads market, and how Facebook is challenging YouTube’s dominance in this market.

See our complete analysis for Facebook

See our complete analysis for Google

Online Video, The Fastest Growing Segment Within The Digital Advertising Landscape, Is Forecast To Rise At Over-17% Annually During 2015-2017

Relevant Articles
  1. Will Johnson & Johnson Stock Rebound To Its Pre-Inflation Shock Highs of $185?
  2. Should You Pick Eli Lilly Stock After A 4x Rise In Three Years?
  3. Down 9% This Year, What’s Next For Lululemon’s Stock Past Q4 Results?
  4. Down 14% In The Last Trading Session, Where Is Adobe Stock Headed?
  5. Will Higher Federal Government Spending, Gen AI Drive Digital Security Stocks Like CrowdStrike Higher?
  6. Up 30% In A Year Is FedEx Stock A Better Pick Over UPS?

Online video has emerged as the fastest growing segment within the digital advertising landscape.  Factors driving this trend include: 1) faster wireless Internet connections such as 4G; 2) the enhancement of smart-phone technology and increasing screen sizes; and, 3) the uptake of videos on social networking platforms. The global online video advertising market (by revenues) is forecast to rise by 23% in 2015 to reach $13.8 billion, according to IHS (a market research firm) and Vidiro (a video analytic company). In addition, online video advertising revenues are estimated to rise to $19 billion by 2017. [1] The dramatic surge in video consumption over mobile devices has contributed to this growth. Mobile video views rose by 95% annually to account for 41% for all online video views in Q1 2015, according to Ooyala (a video technology company). Further, the share of mobile devices in online video views is forecast to reach 50% by the end of 2015.  ((50% Of Online Video Views Will Be On Mobile By End of 2015 [REPORT], Dazeinfo, July 7, 2015))

The same trend is also demonstrated across YouTube and Facebook, which represent the leading players in the online video vertical. YouTube’s consumption has risen by 50% year over year, in terms of hours watched, over the recent past. ((Online Video Advertising Revenue Doubles in Three Years, Says IHS and Vidiro, IHS, May 12, 2015)) And for Facebook, over 65% of video views occur on the mobile platform globally.

YouTube Remains The No.1 Platform, Followed By Facebook

While Facebook’s video views are rising at an enormous rate, YouTube still remains the leader in the online video market. YouTube is forecast to record 3 trillion video views during 2015; in contrast, Facebook’s video views are estimated to reach 2 trillion during the year, according to a study. [2] The August 2015 U.S. desktop online video rankings by comScore also confirm thhis as well: While Google Sites (led by YouTube) saw 168.4 million unique viewers, Facebook ranked second with 88.9 million unique viewers in the U.S. (on desktop computers) during August 2015. [3]

Can Facebook Be A Threat To YouTube?

We believe online video will continue to gain significant traction on Facebook over the coming future. While video views were seen at over 4 billion daily at the end of Q1 2015, we think this number will continue to rise rapidly in the future. This is as the social network platform appears to favor video in its user feed algorithms. In addition, it also gives higher preference to videos that are directly uploaded on the platform. In February 2014, only around 25% of all videos that were posted on Facebook were directly uploaded to the platform, with the rest coming from other video-sharing sites such as YouTube, according to Socialbakers. However, presently, over 70% of the videos are directly uploaded to the platform. [4]

A number of content-providers such as BuzzFeed have noted strong growth in viewership for their videos that were uploaded to Facebook over the past few months. We believe Facebook’s efforts to prioritize videos will also help in its efforts to increase engagement rates and to retain audience within the millennial demographic. Combined with Facebook’s superior ad targeting capabilities, we expect its mobile video advertising business to grow drastically, in the coming years. While Facebook does not divulge its revenues from online videos separately, IHS forecasts they will comprise over a quarter of the overall online video ad market by 2018. [1] We would like to note that there have been concerns lately that Facebook’s video views are somewhat exaggerated, as it counts views just after 3 seconds of play (whether or not the user turned on the sound or saw the video). In spite of these issues, we think Facebook’s video advertising business is expected to see substantial growth over the coming years, owing to its wide-spread popularity and data-targeting capabilities.

YouTube’s advertising revenue was estimated at $4.2 billion in 2014 by IHS. Facebook’s rapid expansion into the online video market is expected to toughen competition for YouTube, for both online marketers as well as content producers in the coming years. That said, we think Facebook will not be able to cause a significant dent in YouTube’s business, at least in the near-term. This is because both platforms serve different user behaviors and audiences. Hence, we expect video viewership growth to rise at a solid pace on both platforms, in the short-term.

Our $102 price estimate for Facebook’s stock, represents near-10% premium to the current market price, while Alphabet’s $647 price estimate is inline with the current market price.

See More at Trefis | View Interactive Institutional Research (Powered by Trefis)

Get Trefis Technology

Notes:
  1. Online Video Advertising Revenue Doubles in Three Years, Says IHS and Vidiro, IHS, May 12, 2015 [] []
  2. Facebook Video Views Gaining on YouTube [Study], ClickZ, June 22, 2015 []
  3. comScore Releases August 2015 U.S. Desktop Online Video Rankings, comScore, September 25, 2015 []
  4. How Facebook’s video-traffic explosion is shaking up the advertising world, Fortune, June 3, 2015 []