In the last year, Facebook (FB) video views have grown from an average of one billion per day to four billion, but FB stock owners haven’t seen a significant benefit from it.
For instance, advertisers are now more likely to use Facebook video ads instead of static ads, but FB’s bidding system doesn’t require them to pay more for video capabilities.
Last week, however, the company gave us an update on its efforts to increase the amount of video on the platform and start to monetize it.
From new video formats to different ways of presenting Facebook videos, FB stock investors should be happy with what’s coming down the pipeline.
FB Stock Owners Will Finally See Some Revenue
The most exciting piece of news is that FB plans to expand its test of “suggested videos.” Suggested videos currently pop up for some iPhone users whenever they click on a Facebook video in News Feed. It lists several related videos to the one a user is currently watching.
Additionally, FB is starting to test ads within the suggested videos experience. Facebook refuses to show pre-roll ads like Alphabet’s (GOOG, GOOGL) YouTube, so these ads should fit more naturally due to the passive nature of News Feed. FB stock investors will finally see additional value created from those 4 billion daily Facebook video views.
Facebook videos might increase the amount of time spent on FB, but it decreases the amount of time a user might be looking at advertisements. Management has continued to grow ad revenue as both users and total advertisers continue to grow, but it was leaving money on the table not advertising against video. It looks like the company is ready to take the first steps toward monetizing video for FB stock investors.
What’s more, FB is creating a dedicated place in the app for when users exclusively want to watch videos. This is seen as a major step to take on YouTube, as it represents a shift from the passive News Feed to a more active video discovery channel like YouTube. Users will be able to see videos “from friends, Pages they follow and other video publishers on FB.”
What’s more, this section could also include advertisements, since users are explicitly requesting content instead of Facebook simply serving it to them. That’s another potential catalyst for FB stock.
Yet Another Growth Factor for FB Stock
Video is a huge opportunity still for the company. Management recently opened up Facebook video advertising to third-party analytics, pleasing many advertisers that otherwise wouldn’t buy ads. It’s also added the option to only pay for video ads that are seen for at least 10 seconds, pleasing them even more.
I expect FB to continue working with marketers to figure out how it can best suit their needs.
The opportunity can only be seized, however, if Facebook becomes a destination for videos. That’s a space YouTube currently dominates. The ability to save Facebook videos for later viewing, suggested videos and the dedicated videos section in the app, however, may make FB a worthy competitor to YouTube. That could mean a significant revenue bump for FB stock investors.
YouTube reportedly generated $4 billion in revenue last year and $3 billion in revenue during 2013. YouTube’s chief business officer Robert Kyncl says that digital video is a $200 billion a year space.
For reference, FB generated $12.5 billion last year, and analysts expect it to generate $17.2 billion this year. Even an additional $1 billion from video monetization efforts in 2016, would represent 6% revenue growth for FB stock investors.
The opportunity is big, and Facebook is just getting started.
As of this writing, Adam Levy did not hold a position in any of the aforementioned securities.
