Facebook’s revenue per page view (RPM) is on the rise. RPM refers to the average text and display advertising revenue that Facebook earns from every page viewed on its website. This revenue is dependent on prevailing ad rates, the number of ads shown per page, the type of ads used and the nature of the ads. Facebook’s ad revenue is accumulated through two payment structures: CPM (cost per 1,000 impression) and CPC (cost per click).
We estimate that Facebook’s revenue per page view declined from around $0.58 per 1,000 page views in 2006 to around $0.38 per 1,000 page views in 2009. The revenue has traditionally been low compared to powerful search engines like Google (NASDAQ:GOOG) and Yahoo (NASDAQ:YHOO) and other commerce sites since people traditionally use social networking sites like Facebook for communication rather than seeking information on products and services.
This downward pressure on Facebook’s ad rates will be partially offset by improving ad targeting on Facebook and a broader shift in advertising dollars online coupled with the company’s growing online presence.
While we expect Facebook’s RPM to cross $0.5 per 1,000 page views by the end of our forecast period, Trefis members predict that RPM level will approach $0.7, representing an upside of 21% to our market cap estimate for Facebook.
Viral Nature of Ad Feeds
Facebook users can flag an advertisement they find interesting or useful by simply clicking on the link below the ad that says “Become a Fan” or “Like”. These ads are then displayed to the users’ friends. The chances of these ads being clicked by friends are greater since these ads work like recommendations. Ad recommendations and feeds are not prevalent on other sites. For Facebook, such user actions are considered click-throughs even though the user is not really clicking-through to the advertiser’s site. Thus, Facebook is improving its click-through rate on ads which could lead to improvements in RPM. [1]
Improving Measurability and Effectiveness of Ads
Nielsen Company and Facebook have formed a strategic alliance to help advertisers measure the effectiveness of Facebook advertising. The first product of the collaboration, Nielsen BrandLift, measures aided awareness, ad recall, message association, brand favorability and purchase consideration via a set of short, specially designed surveys. It uses opt-in polls on Facebook’s homepage to measure consumer attitudes and purchase intent from display advertising that has appeared on the site.
The combination of ability to quickly and effectively poll a sample more than 300 million Facebook users and Nielsen’s expertise in data analysis will give advertisers access to powerful data they can use to understand and improve marketing campaigns. Once this happens, it will help establish Facebook as a preferred medium for advertising, as BrandLift will provide effective feedback to existing campaigns.
See our full analysis and $45.1 billion market cap estimate for Facebook
Trefis Community Forecast
Trefis community members expect revenue per page view (RPM) for Facebook to increase from $0.45 per 1,000 in 2010 to $0.66 per 1,000 by the end of our forecast period, compared to the Trefis base estimate of roughly $0.54 per 1,000 during the same period. The member estimates imply an upside of 21% to the Trefis price estimate for Facebook’s equity value.
Notes:- See our article: How Facebook Can Be a $100+ Billion Business [↩]
