Facebook (FB) stock recently got a lift after Cantor Fitzgerald raised its price target from $92 to $100 per share, citing the company’s massive scale and exposure to the ever-growing world of internet advertising.
But forget bullish analysts: The bigger catalyst for FB stock is the company’s desire to usurp Google‘s (GOOG, GOOGL) YouTube as the Internet’s video hub.
It’s no secret that the social media giant is trying to elbow its way into online video, but it appears FB is really putting its money where its mouth is: For the first time, Facebook will start sharing ad revenue with content creators, a model that GOOG’s YouTube has been operating for years.
There are some meaningful differences: Facebook’s rev-share only applies to select people, brands and companies, whereas anyone with a camera and some chutzpah can take to YouTube in the hopes of going viral and striking it rich.
I happen to think that FB stock is a mighty compelling buy today, but should GOOG really be worried?
FB Cannot be YouTube
Facebook can imitate YouTube’s rev-share percentage all it wants — both companies take a 45% cut of ad revenues — but the two platforms are wildly different. Although FB claims to serve about 4 billion video views per day, that stat’s pretty deceiving, considering they auto-play on mute in your news feed and a “view” is defined as at least three seconds of someone tolerating a moving image.
GOOG should not lose sleep over this. At all.
The quality of the average Facebook video viewer is much less attractive from an advertiser’s perspective than a YouTube viewer. Think about it: A YouTube viewer is often searching for a particular video or type of video; they’ve gone to the platform expecting to watch video, and they have an idea about what they want to see.
Not true with the typical viewer of a FB video, at least in its current state. Anecdotally speaking, 90% of the Facebook videos I encounter I have a visceral urge not to view. If I wanted to watch something, I’d be on YouTube. I want to waste time differently, thank you.
Facebook realizes it’s playing a game of catch-up which is why it just introduced a new pricing format that allows advertisers to pay based on how long a video is viewed rather than merely whether or not the video is seen.
The decision to pay up for content is tantamount to a declaration of war against GOOG and YouTube, I’m sure of that. And FB’s recent promotional partnership with Time Warner’s (TWX) HBO — the first episodes of new HBO series The Brink and Ballers were made available for free on Facebook last week — shows that Facebook is keenly aware that it needs to make some game-changing moves to be taken seriously.
In short, FB is taking baby steps in the right direction. The rapidly growing number of Facebook videos is impressive — as I noted last week, 2 trillion views a year is no joke — but the quality of videos is a far more important problem to solve, I think.
Today we saw Facebook lose the naivete that prevented it from becoming a central destination for online video. Specifically, it realized this sort of language, found on Facebook’s “best practices” page for content creators, is glaringly devoid of incentives:
“Post exclusive video content to your Page to reward them with something that they can’t get anywhere else.”
Now, for a select number of partners, the incentive is there. Whether that causes any meaningful shift in behavior remains to be seen.
As of this writing, John Divine did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.
