Last quarter was undeniably successful for the king of social media. For the first time, Facebook (NASDAQ:FB) cracked the $4 billion in quarterly revenue, thanks to its nearly 40% jump in sales compared with 2014's Q2 of "just" $2.9 billion. As usual, the overwhelming majority of revenue comes from advertising, just as with social-media tweet master Twitter (NYSE:TWTR).
An even larger percentage of Facebook's total revenues were from ads this past quarter, thanks to a 19% decline in desktop gaming sales, CFO Dave Wehner says. About 95% of Facebook's record-breaking revenue last quarter were from ads, compared with Twitter's 90%. Its reliance on ad sales could be worrisome, but according to some recent data from Business Insider, Facebook investors needn't worry. Not only is Facebook able to charge digital marketers industry-leading rates, but it also absolutely blows away the Twitters of the world in terms of market share.
Just the facts
This year alone, according to eMarketer, digital marketers will spend an estimated $23.68 billion on social-media spots around the globe, up a third from last year. And the pace of social-media ad spends is expected to continue, growing to just shy of $36 billion by 2017, equal to 16% of all digital advertising dollars.
That's good news for the likes of Facebook, but unfortunately for Twitter fans, the social-media ad-spend increase will barely move the needle for the tweet master, based on its existing share of overall market. As it stands, Facebook is responsible for half of every referral for the entire social-media market, and better still, nearly two-thirds of all that social-media ad revenue eMarketer expects are from Facebook. It's no wonder Facebook stock continues to inch toward $100 a share despite pressure on the overall market.
How bad is it for Twitter? U.S. mobile social-media e-commerce market share is an example of Twitter's problems. In Q1 of this year, Pinterest accounted for four times the amount of sales traffic on mobile devices as Twitter, despite having about six and a half times fewer monthly average users, or MAUs, and it's second to Facebook with 16% of social-media revenue. And Twitter's challenges appear to be getting worse, not better, as it loses influence with "mass-market merchants."
It gets even better
As it stands, Facebook's Instagram property is primarily used for branding purposes, so it doesn't drive much in the way of sales traffic for retailers. But that's expected to change thanks to Facebook's emphasis and ability to utilize user data. Is shouldn't be long before Instagram garners its fair share of the social-media ad pie, adding appreciably to Facebook revenue and dominant social-media spend market position.
Already Facebook dominates the fast-growing mobile advertising market -- both as a percentage of social-media dollars and usage -- and based on last quarter's earnings call, it should only get better. According to Wehner, mobile ad rates jumped a whopping 220% last quarter compared with 2014, thanks to both Facebook's focus on targeting users on the go and incorporating more video spots.
Diversifying revenue sources is rarely a bad idea, and last quarter's 8% year-over-year decline from Facebook's payments and other fees sales to $215 million could use a boost. It may have just what the doctor ordered on the way. The much-anticipated Oculus Rift virtual-reality headset is scheduled to hit the shelves in early 2016, a product that should give the "struggling" payments unit a kick-start both by generating product sales and turning the tide on its dropping gaming revenue.
In terms of boosting revenue and growing its already significant share of the social-media ad pie, Facebook can also point to its 900 million -- and still growing -- WhatsApp MAUs, and over 700 million Messenger users.
Neither of the two leading messaging behemoths are monetized as yet, but Facebook CEO Mark Zuckerberg is experimenting with Messenger for businesses and has said repeatedly that once WhatsApp hits a billion MAUs, it will be time to seriously consider getting a return on its $19 billion investment. At its current pace, WhatsApp should hit the vaunted 1 billion user mark by year's end. Facebook's dominant social-media ad position not only looks secure in the foreseeable future, but it's also positioned to increase its lead.
Tim Brugger has no position in any stocks mentioned. The Motley Fool owns and recommends Facebook 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.