The Three Key Drivers To Facebook’s Growth
With more than a billion daily active users, Facebook (NASDAQ:FB) is the world’s most popular social media platform. Its ancillary platforms WhatsApp and Instagram have also shown tremendous growth in their user bases, with WhatsApp crossing 900 million monthly active users in September 2015. We believe that WhatsApp and Instagram, along with increased mobile and video advertising on the core platform, will be the key factors driving Facebook’s growth going forward.
See our complete analysis for Facebook
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Mobile, Video Advertising On Facebook Platform
Facebook’s mobile platform contributed 76% of its total advertising revenues in Q2 2015, up from 53% in Q4 2013. With users shifting from PCs to smartphones and tablets, digital advertisers are increasing their advertising spend on mobile platforms, which saw an increase of nearly 60% in ad spend between 2014 and 2015. [1]. We expect Facebook to benefit as the shift towards mobile continues, driven by increased ad inventory on the mobile platform coupled with strong growth in ad pricing.
The online video market is emerging on the forefront of digital advertising, and is forecast to continue to see impressive growth. Facebook is gaining on YouTube in the online video market, and its video views are estimated to reach 2 trillion during the year, according to a study. [2] Facebook is prioritizing videos in its user feed algorithm, which we believe will increase engagement within the millennial demographic. This, combined with Facebook’s ad targeting capabilities, should drive growth in its mobile video advertising business.
Monetization Of WhatsApp
In September, Facebook mentioned that the number of monthly WhatsApp users had crossed 900 million. The company’s plan to monetize this platform appears to be similar to the Facebook platform, by gradually allowing users to interact with businesses on the chat application. Currently, businesses can set up accounts on WhatsApp to send content or marketing messages to users who are willing to interact with them. Facebook plans to eventually charge businesses for this opportunity. The revenue potential is large, with the increasing user base and other monetization possibilities including paid voice services and other value-added services. We expect Facebook to bring in average revenue of $6 per WhatsApp user by the end of our forecast period.
Instagram has more than 400 million users who post around 80 million photos per day, and Facebook has started monetizing this platform by incorporating advertisements in users’ feeds. Advertising on the platform has been rolled out in 30 international markets with further expansion plans in the future. Innovation in terms of “Shop Now”, “Install Now” and “Sign Up” buttons at the bottom of each Instagram ad was introduced in 2015. With advertising features similar to the Facebook platform, with a large active user base, Instagram has massive revenue potential. We expect Facebook’s average revenue per Instagram user to be around $10 at the end of our forecast period.
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