This Is the Only Company Gaining Share in Mobile Advertising

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Although the mobile advertising market is growing rapidly, one company is expected to stay ahead of the pack in 2014, growing mobile ad revenue at a 117% pace. And it's not from a small base either. This company generated over $3 billion from mobile advertising. Only Google (NASDAQ: GOOGL  ) took more mobile ad dollars.

The company is Facebook (NASDAQ: FB  ) . eMarketer expects the company to grow share of the mobile advertising market from 17.5% in 2013 to 21.7% in 2014. The only other company gaining even a marginal amount of market share is Twitter (NYSE: TWTR  ) , but that share gain may be short-lived as the company grows.

How Google took over 50% of the mobile ad market
Google is heavily built into the mobile ecosystem. Its Android OS was featured in some form in nearly 80% of all mobile device sales last year. Google's services, including Search and Mail, are featured front and center in the vast majority of those devices. What's more, Google pays Apple to be the default search engine for its iDevices.

This strategy has helped Google capture an enormous amount of ad volume from mobile traffic as smartphone and tablet penetration increases. But as smartphone and tablet growth slows, so does Google's mobile ad revenue growth. The company is still expected to grow mobile revenue 66% this year, indicating there's room for Google to better monetize mobile users.

Indeed, at the Morgan Stanley Technology, Media and Telecom Conference, Senior VP Nikesh Arora stated, "I think in the long-term, the mobile monetization is going to be a multiple of desktop monetization not a fraction." The fact is there's a lot more user data on a mobile phone than on a desktop, which means that ads can be more effective. Google just needs to execute on this to drive mobile (and overall) ad revenue growth going forward.

Twitter has a shorter runway
In the fourth quarter, Twitter reported that over 75% of its advertising revenue came from mobile. Comparatively, Facebook generated 53% of ad revenue from mobile. Even with the robust mobile ad revenue growth at Facebook, it's still expected to bring in 63.4% of ad revenue through mobile ads.

The point is, Twitter's users are already on mobile devices. Moreover, Twitter's mobile ad monetization is already near a one-to-one ratio with desktop ad monetization as 76% of monthly active users accessed the site via mobile.

But Twitter is seeing the opposite trend of Facebook and Google in its advertising prices. Cost per ad engagement fell 18% sequentially in the fourth quarter and down 69% year over year. Twitter has made up for it in volume, though, as engagement increased 76% sequentially and over 600% year over year.

Additionally, its ability to continue growing engagement at a rapid pace is questionable as timeline views declined sequentially for the first time last quarter.

Facebook is adding value to mobile ads
Twitter started delving into advertising with high minimum spend products. The only way for it to move is downward in the chain, with the hopes that volume will make up the difference.

Facebook, on the other hand, is creating more valuable ad products. The company has had great success with its mobile app install ads and subsequent app engagement ads. Users will soon start seeing video ads in their Newsfeeds, which will demand a premium over typical mobile ads. In other words, Facebook is moving up the chain, providing premium ad products.

Even as user growth slows, Facebook has found a way to increase its average ad price. In the fourth quarter the company increased average ad prices 92% year over year. While the company is scant on the details regarding the pricing of mobile ads and desktop ads, it's clear native Newsfeed ads demand a higher price than right-hand column ads present on desktop browser only.

Just as with its introduction of native Newsfeed ads, Facebook's ad products going forward will certainly have a mobile first mind-set. As Facebook creates new ad products, and brings more advertisers to mobile it will continue gaining share of the market.

Room for everyone
Mobile advertising spend more than doubled last year. The segment is expected to grow in the double digits for the foreseeable future as more smartphone and tablet penetration increase and companies like Google and Facebook improve monetization for themselves and their advertising partners. With eMarketer expecting another 75% growth in mobile ad spending this year, there's plenty of room for all three companies to continue growing ad revenue at a rapid pace. Facebook, however, is definitely a step ahead in mobile making it a strong investment.

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Adam Levy

Adam has been writing for The Motley Fool since 2012 covering consumer goods and technology companies. He spends about as much time thinking about Facebook and Twitter's businesses as he does using their products. For some lighthearted stock commentary and occasional St. Louis Cardinal mania

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