When Facebook (NASDAQ:FB) announced Q4 and fiscal 2014 earnings in late January, CEO Mark Zuckerberg proclaimed, "We got a lot done in 2014." From a shareholder's perspective, Facebook did a lot more than simply get some things done last year. Revenue continued to soar, Facebook boasts nearly 1.4 billion monthly average users -- and continues to grow faster than social media wannabe Twitter, despite its size -- and its portfolio of properties is enjoying similar success.
Of course, that was last year. The question going forward is how Facebook continues its run of stellar financial and user results. One answer was to finally take the wraps off its long-awaited video ads, which Facebook has now done and is finally pushing out to the masses. The potential for video spots is significant, and should go a long way toward Facebook posting yet another banner year.
That's the good news. The even better news for investors is that according to new data, video spots could prove to be even more lucrative to Facebook than the already sky-high expectations.
It's about results
Facebook was able to be very selective in determining which of its marketing partners would participate in its video testing phase -- and charge them $1 million a day for the privilege -- because video ads work. That's especially true for Facebook video spots, because it's able to amass and utilize user data so effectively that its marketing partners get stellar results. And there's a lot at stake.
According to one estimate, advertisers across all mediums will spend nearly $600 billion globally this year, a 6% jump from 2014. Of all those ad dollars, a larger and larger portion are expected to be digital spots, climbing to a third of worldwide advertising spend in just two years. The reasons are obvious: the number of online users, be they mobile or otherwise, continues to grow at phenomenal rates. And for now, at least, digital ads can be targeted and their results measured unlike ads in any other medium.
That could be changing as Facebook's digital ad competitor Google (NASDAQ:GOOG) (NASDAQ:GOOGL) begins testing the utilization of Fiber TV viewer data to better target ads, similar to digital spots. But for now, no medium can deliver the right ad to the right person at the right time better than digital. And no online ad generates measurable results better than video. That's why there were so many investors and analysts chomping at the bit for Facebook to roll its auto-play video spots out to the masses.
Bigger than big
In a survey conducted last month, marketers across the U.S. were asked if they have purchased a video spot on Facebook or intend to in the next six months. Of those surveyed, a whopping 63% said they already have gone video on Facebook, or expect to soon. This should have Facebook shareholders and prospective investors feeling giddy.
Those are remarkable results, and support estimates that Facebook will generate $700 million in revenue from auto-play video ads alone this year.
Even those revenue expectations may prove conservative. As for the 38% (the results were rounded up) of survey respondents that said "no" to video, the 180% year-over-year improvement in video ad click-through rates that Facebook advertisers enjoyed in Q4 could change their collective minds before long.
Naturally, Facebook is not alone in recognizing and benefiting from the success of video spots. Google's wildly popular YouTube commands a good portion of marketing departments' digital ad budgets. And rumor has it that Google is planning on expanding YouTube to include a subscription service with original content. Clearly, Google is taking steps to maximize its highly profitable property, and the aforementioned Fiber ad testing could help it better target its spots by expanding its user data profile.
However, as it stands today, not even Google can match Facebook's ability to utilize data for marketing purposes, which is why Facebook is able to charge video advertisers as much as six times more than YouTube commands. By sheer volume, Facebook can't touch YouTube's video advertising scope, nor its estimated $1.5 billion in net revenue this year -- yet. But if the eMarketer report proves correct, the video advertising revenue gap between the two behemoths will close, and Facebook investors will reap the rewards.
Tim Brugger has no position in any stocks mentioned. The Motley Fool recommends Facebook, Google (A shares), Google (C shares), and Twitter. The Motley Fool owns shares of Facebook, Google (A shares), Google (C shares), and Twitter. Try any of our Foolish newsletter services free for 30 days. 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.