Is Facebook Threatened by Twitter?

Facebook is striving for revenue growth in the video ads business. Is it threatened by Twitter and Google?

Mark Girland
Mark Girland
Apr 15, 2014 at 9:30PM
Technology and Telecom

Twitter (NYSE:TWTR) recently expanded its partnership with research firm Kantar. The partnership will mark the start of a program to make a better use of real-time data generated by Twitter users. Does this mean Twitter will hurt Facebook (NASDAQ:FB)? In fact, Facebook can do much the same thing. Also, its efforts in the video advertisement sector, along with the growth of its search ad revenue, will ensure that it is not eclipsed by Twitter.

Facebook and real-time data
A real-time data analysis is crucial if organizations are to avoid a delay in information gathering. Gartner is projecting a 45%-per-year average growth rate for social media, social network, and content analysis from 2011-2016. To make a big gain from the market, Facebook is beginning to master identifying real-time moments. It recently made some changes to its Power Editor. With its larger user base, Facebook can generate more real-time data than Twitter.

The video advertisement sector
Facebook's strength, like Twitter's, is in the advertising sector. In the fourth quarter, the company recorded 90% of its $2.59 billion revenue from its advertising business. A little over 90% of Twitter's fourth-quarter sales, equal to $220 million, were derived from ad-related activities.

However, Business Insider Intelligence is forecasting that online video ad revenue will increase by 35% to more than $9 billion in 2016. To  benefit from that, Facebook is prepared to launch video advertisements to compete with Twitter. In the case of Twitter, the company has been meeting with agencies and brands, showing off its ad product road map in an attempt to counter Facebook's push into the video ad market. Facebook and Twitter are poised to capitalize on the video advertisement segment. However, one look at their prospects in the ad market shows Facebook is positioned to make more money.

The search ads sector
Facebook and Twitter remain the biggest threats to Google (NASDAQ:GOOG) in the online advertisement market. According to Gartner, worldwide mobile advertising revenue will reach $24.5 billion in 2016. Facebook and Twitter want to exploit the situation. In March, Facebook released Graph Search to find answers to questions asked by its users. Twitter has made its promoted accounts appear at the top of Twitter search, which serves as another selling point for the company.

However, Facebook's revenue from its advertising business, helped by search ads, was $2.34 billion in the fourth quarter. Emarketer has predicted Facebook will gain 9% of the market by 2015. Twitter, on the other hand, is expected to gain 2.2% of the market share by the same year, up from 0.6% two years ago. Twitter has an expanding business model revolving around search ads, but Facebook is a winner in this department.

A threat to Facebook and Twitter
Google has built a powerful platform based on video and search engine advertisements. It reported a revenue of $16.86 billion for the fourth quarter, an increase of 17% compared to the fourth quarter of 2012. In the video ad sector, YouTube channeled more than $5.5 billion in sales last year. Estimates from Emarketer indicate that U.S. digital video ad spending will nearly double in four years. YouTube's advertising revenue makes it very important in Google's future plans.

Final Foolish thought
Facebook's recent acquisitions have raised eyebrows, but the company has an eye on the future. The company's experiments at optimizing real-time data, initiatives in the video advertisement sector, and the rise in its search revenue make it a compelling buy.

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