Can Video Boost Facebook (FB) Ad Revenues in Q3 Earnings?

Facebook 's FB huge user base of more than 2.23 billion combined with Instagram's strong user base presents a larger canvas for advertisers and makes the platform highly attractive. The company's video initiatives are also expected to keep advertisers loyal to the platform.

In the last reported quarter (second-quarter 2018) advertising revenues soared 42.3% year over year to $13.04 billion. Mobile ad revenues surged 50% year over year to $11.9 billion, contributing 91% to total ad revenues. The growth was driven by higher ads in feed on Facebook and Instagram. The company also witnessed healthy growth in video ads, among all advertiser segments.

For third-quarter, the Zacks Consensus Estimate for advertising revenues is currently pegged at $13.66 billion.

However, slowing user base, due to data privacy related issues, is a major concern. In second-quarter 2018, daily active users (DAUs) growth stalled in the United States and Canada. Moreover, DAUs in Europe declined 3 million sequentially.

Click here to know how Facebook's overall third-quarter performance is likely to be.

Can Video Keep Advertisers Happy in Q3?

The security issues as well as increasing regulations and censoring are not only spooking users but also advertisers. Since advertising accounts for more than 98% of Facebook's revenues, the exodus is likely to impact top-line growth. In fact, management expects revenue growth rates to decline high-single-digit percentages on a sequential basis, for both third and fourth quarter.

However, Facebook intends to cash in on the ever-increasing trend of video viewing on social media platforms. Online video is the most lucrative component of digital advertising. Advertisers prefer video advertisements as these appear to be most attractive to the audience.

Facebook, Inc. Revenue (Quarterly)

Facebook, Inc. Revenue (Quarterly) | Facebook, Inc. Quote

Notably, new video ad products like In-Stream Reserve program and ThruPlay are expected to drive advertising revenues. With In-Stream Reserve, companies can choose to advertise on the most popular videos on Facebook. Meanwhile, ThruPlay charges advertisers only for ads that are watched till the end, or for at least 15 seconds.

Moreover, Facebook Watch is a key catalyst in this regard. The video streaming service, Watch is a special section on the social media giant's platform that focuses on video content, including entertainment, news and sports, among others.

Notably, the company has plans to spend up to $2 billion to create and produce content on Facebook Watch. The company is trying to incorporate more video-oriented content, including original shows and live streaming of sports events like Major League Baseball (MLB). It also signed deals with 21st Century Fox FOXA and CNN to launch news shows.

Facebook has also introduced features like "Watch Party" that enables group members to watch videos together and interact among themselves. Additionally, the social media giant is also allowing users to interact with their favorite video creators to further strengthen the social connect, which will eventually drive viewership.

Zacks Rank and Key Picks

Facebook carries a Zacks Rank #3 (Hold).

The Trade Desk TTD and NetApp NTAP are stocks worth considering in the broader Computer & Technology sector. Both the stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks Rank #1 stocks here .

The Trade Desk and NetApp are expected to report quarterly results on Nov 8 and 21, respectively.

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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 Nasdaq, Inc.

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

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