On just about any metric, Facebook's (NASDAQ:FB) growth is pretty astounding. The social network's third-quarter revenue, for instance, was up 47% year over year. Monthly and daily active users were both up 16% year over year in Q3. And Facebook's net income rose 79% in the same period.
Investors are well aware of Facebook's rapid growth in these areas. But there's one area where Facebook's growth may be going under the radar -- and it's one of Facebook's most important metrics. We're talking about Facebook's active advertisers.
Facebook's active advertisers
In Facebook's third-quarter earnings call, management announced that Facebook has an impressive six million active advertisers. While the number is noteworthy in absolute terms, here's where it really gets interesting: Facebook's active advertisers are up 50% compared to the four million it had this time last year.
The growth gets even more astounding when you factor in the increase in active advertisers on Facebook's photo- and video-sharing app Instagram. During this same period, active advertisers on Instagram have increased from 500,000 to two million. Including Instagram, therefore, active advertisers have increased from 4.5 million in the year-ago quarter to eight million in Q3, up about 78% year over year.
Rapid growth looks poised to continue
While growth in active advertisers across Facebook and Instagram is bound to decelerate as the base of advertisers gets larger, year-over-year growth in the key metric will likely remain at strong double-digit rates for years to come, thanks to a large base of businesses on Facebook and Instagram.
Facebook said this summer that it has over 70 million businesses on Facebook and more than 15 million on Instagram. This means that only a small fraction of businesses with Facebook Pages or Instagram Business Profiles are advertising. In fact, more than 90% of the total businesses on Facebook and Instagram aren't active advertisers yet.
Making the case even stronger, Facebook is still seeing significant growth in businesses launching Facebook Pages for the first time. Facebook's 70 million business Pages are up from 60 million last summer.
Facebook's growing base of businesses on Facebook and Instagram, which are primarily small- and medium-sized businesses, are the perfect target market to become active advertisers on the social network. Sandberg said in Facebook's third-quarter earnings call that "the vast majority" of the growth it is seeing in active advertisers are small- and medium-sized businesses.
Messenger: the next frontier
If the case for continued robust growth in Facebook's active advertisers over the next few years isn't already clear enough, consider the growing opportunity for Facebook to bring advertisers onto Messenger.
There are already 20 million businesses communicating with customers through Messenger, Facebook said in its third-quarter earnings conference call.
Sandberg discussed the opportunity to grow active advertisers on Messenger in the company's second-quarter earnings call in July:
We do think that the advertiser base and the targeting measurement we offer [on Messenger], once we figure out the format, we will be [at a] very considerable advantage. ... And one of the reasons we were able to scale into Instagram ads more quickly is because we were building off of the Facebook advertiser base.
And similarly, the work we've done in Facebook and Instagram and Audience Network will help us expand to Messenger.
Facebook looks well-positioned to not only benefit from increased advertiser spending from existing advertisers, but also from continued rapid growth in new advertisers.