Facebook Inc ‘s revenue stream will expand despite slow ad load growth. This is what the analysts at JPMorgan Chase & Co. believe. JPMorgan explains that the increase in user engagement and ad pricing on the social network will help the firm grow further. The firm appears to be still in the game despite saturation in its ad load growth. This factor is looked upon as a primary driver for the firm’s revenue. In a report to investors, JPMorgan negated concerns about the slowdown in the social network’s ad load.
Facebook Inc Should Raise Ad Prices
As per JPMorgan, there will be a slump of almost 50% in the ad load growth within the next year. However, the sell-side firm explains that there will be a significant increase in user engagement on the social network. This, as per its estimates will drive 57% of the firm’s ad revenue growth in 2016.
Facebook has introduced new methods to engage users, like Instant Articles, which load 10 times faster than normal articles. The video ads, which these articles are embedded with, also use similar load-up algorithms. This increases the probability of users interacting with the advertisements. In turn, this eventually proves to be a factor for the surge in the firm’s revenue. Also, the firm has introduced Canvas, which takes less than a second to load up. It allows users to swipe through a series and interact with the content displayed.
Now, the report by JP Morgan explains that ad units have improved. As a result, the firm has the potential to increase the average price per ad. It has kept the prices low when compared to rivals. Considering the demand among marketers for ad placements on Facebook, it is about time it raise the prices.
Subsequently, the sell-side firm’s 2017 estimates indicate that Daily Active Users (DAU) growth and time spent by users will deplete. The predicted surge in pricing strategies will help the firm’s revenue swell almost 44% y/y in the next year.
What Else Can Facebook Do?
As per James Brumley from InvestorPlace, there are 3 industries that Facebook could dominate next. Mark Zuckerberg doesn’t sit on success. If he wanted to, Facebook’s CEO could easily make a mark in these three areas. When the firm shelled out $1 bn to acquire Instagram back in 2012, the deal raised a few eyebrows. Chat and picture-sharing wasn’t a core piece of the social networking site’s strategy. It was “only” a bn dollars, though. So most owners of Facebook Inc stock were on board with the experiment. The $22 bn purchase of WhatsApp in 2014 was a tougher pill to swallow. Although Facebook had expanded Instagram into something interesting, the price tags for these experiments were getting bigger, fast. In fact, at the most recent annual meeting of shareholders , there was visible discontent over giving Mark excessive control over the firm.
The deals made the March 2014 acquisition of virtual reality outfit Oculus all the more alarming to FB shareholders. After all, what in the world was CEO Mark Zuckerberg going to do with virtual reality goggles? In retrospect, while they were odd purchases at the time, all three deals have shown real promise. Maybe diversification isn’t so out of vogue after all. The premise of a tight focus on doing one thing well was all the rage not that long ago. However, students of the market will recognize that a preference for diversification is one thing. But a preference for focus is at the opposite end of the same spectrum. And the pendulum swings back and forth between the two on a rather regular basis. That pendulum is currently swinging in favor of diversification.
Take Amazon.com, Inc., arguably the poster child for seemingly crazy business ventures that ended up working out. When the e-commerce giant got into the cloud storage business, some shareholders were concerned. They thought it would be a waste of time and resources. It has turned out to be quite a success. In the meantime, Microsoft Corporation acquired professional networking venue LinkedIn Corporation. Telecom major Verizon Communications Inc. is going to own Yahoo! Inc. soon. Lines are being crossed. That’s OK. With that as the backdrop, and knowing Facebook is being smart in its willingness to look beyond ad sales as a revenue source, James gives a closer look at three businesses Zuck could start with relative ease, leveraging its existing technologies and existing Facebook users to get them up and running.
#1: Digital Video/Television
Mark Zuckerberg has made it abundantly clear that Facebook is not a media firm. It’s simply the middleman that connects individuals with the media, and he has no plans on getting into the film and video business. The thing is, Netflix, Inc. and Amazon weren’t media firms either … right up until the point in time they both became one. It wouldn’t be a huge leap no matter which direction Zuckerberg might want to take it. FB already shares revenue with some digital content providers, confirming that the YouTube model works for it. More recently, the firm upped its limit on how long a live video stream could last. The cap is now a whopping four hours. A subscription-based model (even content not created by Facebook) is within reach, adding the social dimension to TV watching.
#2: Virtual Reality Filming Hardware/Software
GoPro Inc was never a bad firm. It was just never going to live up to the hype — action cameras are a niche market, and one with slow upgrade cycles. GoPro also never really answered the question of “what do I do with the video I shot?” Ditto for virtual reality cameras, only perhaps even more so on all three fronts. While Facebook can’t single-handedly make the VR camera market bigger than it really is, it can make it better, in that it’s the developer of the Oculus Rift — hardware explicitly designed to immerse users in a virtual world. If Facebook can seamlessly connect VR content creation and VR usage — something GoPro has yet to do well even with non-VR media — it could become the proverbial gold standard in that business, coming and going.
#3: Cloud-Based Storage
Last but not the least, though it’s a highly competitive business, cloud storage and cloud computing is a proven business. Yes, Microsoft, Amazon and others are well ahead in this race, but Facebook has an edge neither of those players has when it comes to making the cloud useful for the average consumer. That is, Facebook has 1.13 bn active users logging in and checking their feed out every single day. They may well appreciate being able to access a document, video, music or even backup data while they’re perusing the site.
James concludes by saying not to look for Facebook to wade into any of these waters anytime soon, if it wades into them at all. On the other hand, don’t be shocked if one or more of them happen sooner or later. A lot of things seem unlikely right up until they became a reality. Indeed, the advent of Facebook itself is one of them. FB toppled a dominant MySpace shortly after MySpace was being hailed as a monopoly. In the grand scheme of things, getting into cloud storage or deeper into virtual reality would be relatively small potatoes for Facebook Inc .