Facebook Video Ads: A Game Changer for FB Stock? - Real Time Insight

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Although many social media stocks experienced a rocky November, several have taken off once again to start December, rekindling hope of another bull run in the space. In particular, Facebook ( FB ) , is seeing strong momentum to open up the month, and is up double digits already in December.

And given some recent news from this social media giant, there is some reason to believe that the run can continue. After all, Facebook just announced a new avenue for revenues which could add to the company's bottom line and help FB to grow even more.

New Type of Ads Coming to FB

FB just revealed that they will be testing their first video ads this week, putting video advertisements directly into users' news feeds. This could be a great second act after the company's huge burst of revenue once it really figured out the mobile advertising game, though this make take a while to get up to speed too.

How It Will Work

It should be noted that, according to Facebook, as users scroll down through their news feed, videos will begin to play as they appear on screen, without sound. However, if you click or tap on the video, the sound for the video will play.

After the video is over, users are given the option to watch two more from the same marketer. This is done in order to make it 'easy to discover more content from the same marketer' according to Facebook.

And for users on mobile devices, it is important to point out that videos will be downloaded in advance, only when the device was connected to WiFi. This means that Facebook users will not have to worry about their data plans being eaten up by the ads.

Lastly, the initial video ad push is just a test with a limited number of advertisers, and that it isn't currently going to go out to every video ad pr page post video. So if the first test flops, FB may have to revisit the idea.

Impact

The video ad market is huge, and with Facebook's massive user base, it is pretty reasonable to assume that many will be lining up to try out this new advertising type. Initial investor reaction seems to be relatively positive too, as FB was up as much as 2% in Tuesday trading on the news.

However, there is obviously a concern about enraging users with even more ads. Facebook users already are hit with ads in their news feeds, and there are already some concerns about reaching a breaking point, so this certainly isn't going to help matters.

The news could put more pressure on other social media stocks to expand their advertising though, and to dive into video ads as well. This could be true for LinkedIn ( LNKD ) to an extent-given their low level of ads in users' feeds right now-and particularly Twitter ( TWTR ) given the company's lack of profitability and need to grow revenues (though the appeal of video ads on Twitter is questionable at best).

Bottom Line

I think that the video ads are a solid idea for FB to grow revenues, and I do not think the intrusion level is that high. However, I only think this will be the case if the videos do not play sound upon scrolling over them.

Videos without the sound are relatively low on the annoyance scale (at least for me) though it shoots up if sound automatically comes on. But, you do notice when something on the screen is moving among a full page of static text and photos, so it could command a reasonable premium, and really help FB become more profitable.

Given this, I am relatively optimistic for FB's revenue growth thanks to these videos, assuming the test goes well and the majority of users do not find them too intrusive. I am also interested to see if this causes any analysts to revise their estimates for FB, as currently the estimate trend is very positive already with FB possessing a Zacks Rank #2 (Buy), so more good days could certainly be ahead for this social giant.

But what do you think?

Will video ads be a game changer for FB stock in a positive way? Or will users abandon the platform thanks to a high annoyance factor?

Let us know in the comments section below!

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Stocks

Referenced Stocks: FB , LNKD , TWTR

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