Facebook Inc. (NASDAQ:FB) recently announced changes in video policies which include distribution of videos on the platform, ad breaks and testing of pre roll ad format. The company expects this move to increase engagement and boost viewership.
Facebook revealed that it has tweaked News Feed ranking which will “help surface videos people are proactively seeking out and coming back to on Facebook.”
The company is also encouraging longer videos, having duration of minimum three minutes. Publishers will be able insert advertisements after a minute’s gap. Previously, ads were placed after a gap of 20 seconds in a video with a minimum duration of 90 seconds. Facebook has been resorting to such measures to uplift viewers’ satisfaction.
Two new metrics that include Ad Break impressions and Ad Break CPMs at the video level have been introduced by Facebook to help advertisers gauge the performance.
Facebook is also testing pre roll ad platform, wherein publishers will be able to put in ads for a duration of six seconds at the start of videos posted only on the platform’s Watch tab.
We believe that these initiatives will help the company drive user engagement and improve the time spent on the platform.
Notably, Facebook has gained 56.6% year to date, substantially outperforming the industry’s 26.9% rally.
Push To Digital Advertising
Facebook intends to capture the opportunity presented by ever-increasing video viewing on social media platforms. Earlier, the company mentioned that video has been emerging as a “megatrend”. The company believes that over the next three years videos will be the key catalyst among all product lines.
Facebook’s focus to develop new ad products and making them more relevant and effective is yielding positive results. The company is using machine learning and automation to help advertisers reach the target audience.
We note that the company has witnessed significant traction in online and mobile advertising spending in a short span. In the third quarter of 2017, ad revenues grew 49% year over year to $10.1 billion while mobile ad revenues surged 57% to $8.9 billion.
Notably, average price per ad increased 35% from the year-ago quarter. Moreover, ad impressions improved 10%, due to increases in mobile impressions.
Management also noted that 70% of ad breaks having duration of 15 seconds were viewed on Facebook and Audience Network, helping advertisers boost revenues.
In the last conference call, CEO Mark Zuckerberg stated, “video can serve as a touchstone for building community and helping facilitate interaction, then that's the thing that we feel like we can uniquely do that.”
Online video is the most lucrative component of digital advertising. As video ads generate more revenues than photo and text-based substitutes, Facebook is trying to incorporate more video-oriented content to gain revenues.
Zacks Rank & Key Picks
Facebook carries a Zacks Rank #3 (Hold).
A few better-ranked stocks in the broader technology sector include IPG Photonics Corporation (NASDAQ:IPGP) , NetApp Inc. (NASDAQ:NTAP) and NVIDIA Corporation (NASDAQ:NVDA) , all sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks Rank #1 stocks here.
Long-term earnings growth rate for IPG Photonics, NetApp and NVIDIA is projected to be 12%, 11.3% and 10.3%, respectively.
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