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Facebook’s stock value rises on increased mobile advertising

Facebook

After several rocky months, Facebook’s outlook suddenly looks stronger based on a jump in the number of ads appearing in mobile news feeds, as well as an increase in its stock value.

In recent weeks, the number of ads appearing in users’ mobile newsfeeds has grown, accounting for up to 20 percent of posts, according to recent reports. The jump suggests brands are flocking to Facebook’s mobile offerings in greater numbers – thereby boosting the social network’s mobile revenues – and is causing the company’s stock to rally.

“The increase in mobile ads on Facebook suggests that brands are looking to invest more ad dollars in mobile advertising, and that Facebook offers them an ability to do so, at scale,” said Michael Levinsohn, executive chairman at Archer, Seattle.

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“The problem remains that many brands believe that simply buying mobile inventory on an ad platform such as Facebook is the same as buying other digital inventory,” he said. “It's not.

“The conversion rates on mobile ads will remain low, and advertisers will remain disappointed, until advertisers start embracing mobile as a way to reach consumers with personalized offers that are relevant to them.”

Bouncing back
Market analysts at Bernstein Research and BTIG recently upgraded their ratings for Facebook’s stock. The suggestion is that the market may be underestimating the social network’s ability to generate revenue from mobile in the near term.

As a result, Facebook’s stock value has also risen to its highest level since late July, after it held its initial public offering. Facebook shares rose more than 8 percent yesterday following the analysts’ reports.

The stock had dropped significantly from the IPO level based in large part on growing concern over Facebook’s ability to drive revenue from mobile as use increasingly migrates to smartphones and tablets.

Facebook has responded to the concern over its mobile monetization strategy by introducing a series of new mobile ad offerings.

Initial brand adoption of Facebook’s mobile ad units was slow. However, early reports that mobile ads on Facebook deliver compelling results and the growing interest in the convergence of mobile and social appears to be encouraging brands to take a closer look at mobile ads on Facebook.

User experience
While the news is good for Facebook’s revenues in the short term, pushing more ads to users who do not necessarily want them, could lead to a deterioration in the user experience.

“Users are already upset with the fact that they have to see ads in order to use what is, otherwise, a free service, and Facebook needs to be careful not to open the floodgates too wide,” said Marc Poirier, co-founder and chief marketing officer of Acquisio, Brossard, Canada.

“It’s a fine balance that they will need to achieve, and the answer to ‘how much is too much?,'" he said. “It will really be up to the users.”

Another challenge Facebook faces with its current mobile advertising strategy is that brands will be hard pressed to determine if delivering mobile ads to Facebook subscribers translates into retail sales.

What brands and Facebook should be focusing on is how to take advantage of mobile’s unique characteristics to deliver ads in a more meaningful way to users.

“Facebook is approaching mobile from a traditional online perspective build an audience and then push as many ads as possible, at the highest attainable eCPM,” Archer’s Mr. Levinsohn said.

“The key for Facebook is to allow their one billion users to choose which offers they want, when and where they want them,” he said. “The way to do that is via "Like" button.

“When Facebook finally completes the circle between the ‘Like’ button and a retailer's point of sale device, they will become the most successful and valuable marketing company on the planet.”

Location-based ads
There is also an opportunity for Facebook to engage in location-based advertising.

For example, it could deliver specific notifications to individuals who are within walking distance of a store.

“A store could advertise 20 percent off, and Facebook could then push that notification to all mobile users with the Facebook app who are within a certain distance of the store,” Acquisio’s Mr. Poirier said. “This is an ad strategy that would work well for all three parties involved: Facebook, businesses and consumers.”

The current focus of Facebook’s mobile advertising strategy has been on ads in the news feed because this does not interrupt the current user experience.

However, there may also be an opportunity for Facebook to use more traditional mobile ad units such as interstitials even though these are more disruptive to the user experience.

“Facebook can test different ad units outside of the news feed, such as video or full-screen interstitials, which can drive mobile ad revenues, but they will also interrupt the current experience,” said Howie Schwartz, CEO of Human Demand.

“The current news feed doesn't interrupt the experience,” he said. “So it will be interesting next year to see what Facebook is going to test as new ad formats.”

Final Take
Chantal Tode is associate editor on Mobile Marketer, New York

Associate Editor Chantal Tode covers advertising, messaging, legal/privacy and database/CRM. Reach her at chantal@mobilemarketer.com.

 
Related content: Social networks, Facebook, mobile ads, Acquisio, Marc Poirier, Archer, Michael Levinsohn, Human Demand, Howie Schwartz, mobile marketing, mobile

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