Facebook Inc (FB) COO Sheryl Sandberg recently gave advertisers a big reason to spend more money on FB — and gave investors another reason to be interested in Facebook stock.
“We have a Super Bowl on mobile every day,” she told attendees of this year’s Advertising Week conference. Ideally, Sandberg wants to see big brands shift some of their big Super Bowl commercial ad budgets to Facebook.
To that end, Facebook announced a new way to buy video ads on its platform. Advertisers can use “total ratings points,” the Facebook equivalent of gross ratings points.
Gross ratings points quantify impressions as a percentage of target audience reached — so if a show reaches 20% of the target demographic and an ad runs five times during the broadcast, an ad campaign receives 100 gross ratings points (5 x 20). Total ratings points operate on the same principle, except the target audience can be defined much more narrowly using Facebook’s advanced targeting capabilities.
That’s Great for Facebook Stock and Advertisers
Providing advertisers a way to directly compare a television campaign with a Facebook campaign will make it easier for advertisers to put a value on their Facebook campaigns.
Facebook’s ad system works based on a bidding system that encourages advertisers to bid their true value for an ad campaign. With the potential reach of an ad campaign on FB, management is betting that its reach will encourage more brand advertisers to shift some of their budgets to Facebook.
There’s a lot of potential revenue for Facebook in television ad budgets. Last year, the company generated $11.5 billion in advertising revenue for Facebook stock owners. Analysts expect that to climb to about $16.3 billion this year.
The U.S. television advertising industry, by comparison, is estimated to generate a whopping $79 billion this year.
A Big Growth Catalyst for Facebook Stock
There’s no better time to strike for FB, as television ad sales have been declining due to low ratings. Competition for viewers between traditional television and streaming services has reduced demand for TV advertisements.
Meanwhile, time spent on mobile devices continues to climb and Facebook’s audience is viewing more and more videos every day. In Facebook’s last update, users watched an average of 4 billion videos per day.
What’s more, the share of advertising spend on mobile is roughly one-third of time spent on mobile. This is a huge catalyst for Facebook stock because FB dominates time spent on mobile. Between Facebook, Instagram and Messenger, smartphone owners spend an average of 46 minutes per day using just three Facebook products.
With Facebook offering television advertisers a viable alternative to TV commercials with an easy way to compare both formats, it’s poised to attract more bids from big brands used to spending the majority of their ad budgets on television campaigns.
FB currently derives most of its revenue from well-targeted direct response campaigns from small- and medium-sized businesses. With 1.5 billion users, it’s an excellent platform for brand advertisers as well, which rely on reaching the widest audience possible. With brand advertising budgets representing ad budget an order of magnitude greater than small businesses, Facebook stock could have a lot more growth ahead of it.
The option for television advertisers to buy ads using total ratings points is an excellent step toward attracting more of that ad revenue.
As of this writing, Adam Levy was long FB.
