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Facebook's Big Opportunity in 3 Charts

By Jamal Carnette, CFA – Updated Sep 30, 2016 at 1:53PM

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Want to know why Facebook stock is up more than 40% in the past year? Read on for more about mobile opportunities.

Facebook CEO Mark Zuckerberg. Image source: Facebook.

It's been a good year for Facebook (META -2.36%) investors. Over the past one-year period, shares of the social-networking site are up approximately 45% as the company continues to grow revenue and add users. If you were lucky enough to participate in the IPO four years ago, you'd be sitting on gains of roughly 240%.

Going forward, a continuing shift to mobile advertising is Facebook's big opportunity. Here's what investors should know about mobile growth in three charts:

Mobile as the new television

In June, The Atlantic published an article that claimed mobile today is the equivalent of television six decades ago. Referencing a Pew Research Center report, "State of the News Media 2016," the article notes mobile advertising has approximately 20% of the total advertising market, the approximate amount television had in 1955.

The Pew report The Atlantic references includes studies from advertising-research firm eMarketer. Another study from the firm is even more bullish for Facebook investors. Overall, eMarketer expects digital and mobile marketing in the United States to grow from 35.8% of total advertising spend in 2016 to 44.9% in 2020. Presented separately, mobile is expected to grow from approximately 23% this year to 32.9% in 2020. At that point, mobile advertising alone will tie television as the largest marketing outlet by total spend.

Source: eMarketer

Facebook is the biggest beneficiary of this shift

Early in its life as a publicly traded company, Facebook was faulted for an inability to monetize the mobile experience. That seems rather inane now, considering mobile advertising revenue represented 84% of all of the company's ad revenue in the recently reported second quarter, up eight percentage points from last year's corresponding quarter.

For a company with nearly 1.6 billion mobile monthly active users, or MAUs, by far the largest total of any social network, Facebook will continue to be the biggest beneficiary of a shift to mobile marketing. In fact, eMarketer reports that Facebook had the largest market share in mobile advertising with a 38% share last year, more than four times the share of the second-largest company, Alphabet.

Source: Pew Research/eMarketer

Even more noteworthy is that Facebook increased its mobile advertising share by one percentage point over 2014. This signifies that Facebook is not only participating in this high-growth market, but growing at a faster rate than the overall market and stealing market share.

Facebook users are going mobile

Considering 84% of Facebook's total ad revenue is currently derived from mobile, it's important to pay close attention to the company's mobile MAU growth going forward. Over the last two years, Facebook has done an admirable job by growing mobile MAUs at a faster clip than total MAUs. As a result, the company has increased its ratio of mobile MAUs to total MAUs.

Data source: Company financials

Since Q3 2014 Facebook has grown its ratio of mobile-to-total MAUs 10.7 percentage points, up from 81.1% that quarter to 91.8% in the recently reported second quarter. As this figure continues to grow, Facebook should continue to grow its top and bottom lines and reward investors.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Jamal Carnette owns shares of Alphabet (C shares) and Facebook. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), and Facebook. 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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