3 Companies Accelerating Ad Revenue Growth With Video

These three companies are betting big on video in 2014.

Mar 16, 2014 at 11:15AM

Online video ad spending is to nearly triple over the next five years as online video streaming becomes the norm. In 2014, growth should continue near the pace of the previous two years, which was about 44.5%. eMarketer expects 41% growth in online video ad spend this year.

Certainly, Google (NASDAQ:GOOGL) is benefiting from this rapid growth as its YouTube platform attracts over 1 billion visitors each month. The growth in video ad spend has been unable to offset the decline due to mobile display ad rates and Google's total display ad revenue growth slowed slightly in 2013.

There are at least three companies, however, that are poised to leverage video ads to accelerate revenue growth: Facebook (NASDAQ:FB), AOL (NYSE:AOL), and Baidu (NASDAQ:BIDU).

Facebook introduces another new ad format
Facebook introduced 15-second video ads to its marketing customers this week. The company took its time testing the format before rolling it out to customers. Users won't see the ads for another couple of months.

Facebook aims to capitalize on its data to allow advertisers to easily make the transition from television to online video. In television, marketers are heavily reliant on viewer data to predict the demographics of its audience. Facebook, can more accurately target key demographics, increasing the effectiveness of an advertiser's message.

And make no mistake, Facebook is definitely going after big-name television advertisers. Bloomberg reports the minimum ad spend for the new ad format will be $1 million per day. This lends itself to high-quality video ads, which ought to be less annoying to users than low-budget spots.

This is somewhat divergent from what's allowed Facebook to increase its ad revenue in the past. Facebook has championed small businesses over the past year, boasting of the 25 million that have a presence on its network. Transitioning those small businesses into advertisers is one of the company's strengths. Additionally, it's made it easier for independent app developers to get their product in front of the masses with app install ads.

The high minimum ad spend will deter some advertisers, but it will attract the serious money as Facebook's targeting is among the best. Considering the premium that video ads have over text, Facebook should be able to continue increasing its average ad price and accelerate ad revenue in 2014.

AOL adapting to the environment
AOL purchased Adap.tv last year, and with the acquisition, leapfrogged Google to become the number one video-ad displayer. In the company's first full quarter after the acquisition, it grew revenue 13% year over year, its strongest revenue growth in a decade.

AOL has invested heavily in video over the last few years. Most notably, its HuffPost Live videos have attracted a large audience as the platform expands internationally. Additionally, AOL On has been able to curate some of the best content. Most recently, the company licensed clips from some of ESPN's best shows.

AOL also has the opportunity to grow Adap.tv internationally, just as it did with Huffington Post. Currently, the video ad platform has very little presence abroad, but could one day generate more revenue outside the U.S. than in it.

The addition of Adap.tv will certainly lead to revenue acceleration for AOL.

Baidu: Now the biggest video platform in China
Baidu surpassed Youku in January to become the largest online video platform in China. The company's iQiyi and PPStream properties attracted 94 million users.

Baidu has invested heavily in video over the last year and intends to continue making investments in 2014. Most recently, the company agreed to license content from Singaporean streaming site Viki. On the company's fourth quarter conference call, CFO Jennifer Li went so far as to say content acquisition of iQiyi will be a key cost item in 2014.

Baidu also sees video as a means to increase its mobile revenue. Google has had great success with YouTube advertising on mobile, and Baidu is seeking to replicate that. One of its efforts is to get its apps pre-installed on smartphones by partnering with OEMs.

Additionally, Baidu sees opportunity in the booming Chinese smart TV market, where it has developed its own OS. The ability for Baidu to place its video apps front and center on two devices seeing should lead to further video ad revenue growth.

Displaying strength
All three of these companies have great potential to accelerate revenue growth in 2014.

Facebook will have the toughest time doing so considering its revenue grew 54.7% last year. Its strength in ad pricing ought to allow it to continue growing ad revenue significantly though.

AOL has the easiest task, especially considering it has Adap.tv's assets for the full year.

Baidu is investing heavily to continue increasing revenue. In 2013, the company grew total revenue 43%. Analysts expect the investments to pay off, accelerating revenue growth to 47% in 2014.

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Adam Levy has no position in any stocks mentioned. The Motley Fool recommends Baidu, Facebook, and Google. The Motley Fool owns shares of Baidu, Facebook, and Google. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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