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Facebook Inc. Is Still Attracting New Advertisers in Droves

By Daniel Sparks - Apr 12, 2017 at 6:31PM

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Five million businesses are now actively advertising on the social network.

Facebook (META 1.70%) has said that demand from advertisers is one of the three key factors driving the company's mind-boggling revenue growth recently. (The other two are increasing ad load and growth in the time users spend on the platform). Fortunately, if Facebook's recent growth in active advertisers is any indication, this key driver remains intact and robust.

More advertisers are active on Facebook than ever before

In just over a year, Facebook's total number of active advertisers has soared a whopping 67%, from 3 million in March 2016 to 5 million today, Facebook reported on Monday. Notably, 5 million active advertisers is also up nicely from the 4 million active advertisers Facebook said it had by September of last year. 

Business man and woman looking at a mobile device

Image source: Facebook.

This is good news for Facebook investors. Since Facebook's revenue growth is expected to come down in 2017 as the company laps tough revenue growth comparisons in year-ago periods, and as Facebook's ad load growth tapers off and subsequently contributes less to growth, it's good to see one of the key factors that has historically fueled Facebook's growth continuing strongly.

In addition, Facebook previously said it has benefited not only from an increasing number of advertisers buying ad products, but from advertisers opting to use more of Facebook's available ad products. And considering that Facebook hasn't slowed down its pace of improving its ad products, it's likely that more advertisers are continuing to expand their marketing campaigns on the platform.

Finally, it's worth noting that a higher number of advertisers also means Facebook's revenue base is becoming more diverse, making Facebook's ad revenue more predictable, reliable, and sustainable. Facebook COO Sheryl Sandberg recently said the social network's top 100 advertisers now account for less than a quarter of the social network's total revenue. As the company's total number of active advertisers continues to grow, Facebook's biggest marketers should continue to account for a smaller portion of total revenue.

Growth potential ahead

While 5 million active advertisers today is impressive, there's still a lot of room for Facebook to grow its advertiser base. This is particularly evident when investors consider that Facebook has 65 million businesses using its free Facebook Pages product today. In other words, only about 8% of businesses with Pages on Facebook are currently paying for advertising. This means 92% of businesses with Pages aren't.

Facebook ad product on a smartphone

Facebook ad. Image source: Facebook.

Going further, Facebook's total number of businesses using Pages is still growing rapidly. The company's 65 million businesses using Pages reported in its fourth-quarter earnings call was up from 60 million in the prior quarter and 50 million in the fourth quarter of 2015. So, Facebook's addressable market of businesses already on its platform that it can convince to pay for ads on the social network is still growing nicely.

Going forward, Facebook continues to believe it can grow its advertising business. This boils down to three priorities, Sandberg explained in Facebook's most recent earnings call: "We continue to focus on our three priorities, capitalizing on the shift to mobile, growing the number of marketers using our ad products, and making our ads more relevant and effective."

Daniel Sparks owns shares of Facebook. The Motley Fool owns shares of and recommends Facebook. The Motley Fool has a disclosure policy.

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