The numbers are nothing short of staggering: In what feels like no time at all, Facebook (META -0.52%) has climbed to the top of the social media heap, and shows no signs of slowing anytime soon. There are several reasons investors can point to for Facebook's stellar results -- from both a sales and user perspective -- but one of the primary drivers of its success is keeping its marketing partners happy.
So, what makes advertisers happy? Getting a return on their investment. In other words, generating brand awareness and ultimately sales via their digital ads. In that regard, Facebook is unmatched in the world of social media, and is even poised to give Alphabet (GOOG 0.74%) (GOOGL 0.55%)-- the reigning king of online ads -- a run for its money.
The reason for Facebook's popularity among marketers was made clear yet again with the release of a detailed study conducted by AdRoll, a retargeting ad agency that works with over 20,000 marketers around the globe.
Just the facts
If you've ever Googled a site (somehow, "Alphabeted" just doesn't have the same ring to it) or left an item in an online shopping cart and then, miraculously, noticed digital ads popping up on other sites that correspond to your recent search or shopping experience, that's an example of retargeting. The idea behind retargeting is to personalize ads based on a user's interest, without the need for comprehensive data analysis that folks like Facebook and Alphabet have become so proficient at.
After reviewing some 55,000 retargeting ad campaigns from July 2014 to the end of June this year, it became abundantly clear that Facebook's ad results as measured by cost-per-click (CPC) and click-through-rates (CTR), among other benchmarks, were through the roof. The unmitigated success of using Facebook for retargeting spots is why AdRoll reported a 31% increase in advertiser spend on Facebook during the yearlong review period.
AdRoll's 55,000-plus clients also enjoyed a 92% jump in impressions reached (the number of consumers who saw an ad), and the improvements don't stop there. Thanks to the sheer volume of consumers reached, the CPC rates declined 27% using Facebook, and the number of click-throughs jumped 26%.
Interestingly, the fastest-growing group among Facebook's advertisers were business-to-business (B2B) marketers, with an average jump in global advertising spend of 61%, easily outdistancing the retail industry's increase. Overall, though, 66% of AdRoll's client's marketing spend came from Facebook's historically predominant retail partners.
What's the big deal?
The aforementioned data is indicative of how Facebook was able to generate a whopping 45% jump in ad revenue last quarter, equal to $4.3 billion of its $4.5 billion in total sales: The spots work, particularly when combined with its in-house, user analytic tools. That's why AdRoll's clients -- like the average of all Facebook's advertisers -- increased their average spend during the review period.
Chart courtesy of eMarketer.
The success of Facebook's marketing partners also explains why of the U.S. companies that use social media sites for advertising, over 85% are expected to opt for Facebook in 2016. Even as the social media site of choice among advertisers, Facebook is a long way from Alphabet's $16.78 billion in ad sales. But by delivering the kind of results its marketers could once only dream about, Facebook will continue to narrow the gap with Alphabet.
Now toss in Facebook's bevy of future growth drivers including the now monetized Instagram, the nearly 1 billion WhatsApp monthly average users (MAUs) and 700 million plus Messenger MAUs, as well as the soon-to-be-released Oculus Rift virtual reality headset, and it's 34% jump stock price pop year to date makes sense. And with the kind of success its 2.5 million marketers are enjoying, combined with all those future revenue opportunities, investors can expect more of the same in 2016.
