Eric J. Sheridan, Vishal J. Patel and Timothy E. Chiodo, CFA of UBS believe Facebook Inc (NASDAQ:FB) is poised to gain from video advertising and from Google Inc (NASDAQ:GOOG) new changes to Gmail. Below is an excerpt from a recent research note.


Facebook Inc (NASDAQ:FB): Increased contribution from video advertising

As discussed in our June 21st note (“Accepting the Friend Request”), our advertising checks indicate that Facebook Inc (NASDAQ:FB) plans to begin selling Newsfeed video ads in 2H 2013. Since then, there have been some developments that make us incrementally more optimistic about this opportunity.

Higher than expected pricing:

Based on our initial checks, Facebook Inc (NASDAQ:FB) was pitching its video ad product to advertisers with asking prices reaching the seven figure range. Over the past few weeks, more details have emerged around these offerings, including press reports that the advertisements could sell for as much as $2.5mm per day (our subsequent conversations with advertisers have corroborated this as well). This price point is above our initial expectations, and suggests there may be upside to our initial estimates. Some of our early checks have indicated that Facebook Inc (NASDAQ:FB) might be able to generate approx. $2-4mm per day from video ad products (in North America alone) in 2014.

Nielsen provides a robust business case:

Furthermore, a study released by Nielsen (commissioned by Facebook) on July 31st compared Facebook to the four top TV networks and found that Facebook Inc (NASDAQ:FB)’s reach exceeds that of the TV networks during daytime for most age groups (particularly in the 18-35 range), and provides meaningful duplication during primetime.

We believe these findings provide a compelling business case for TV advertisers to adopt Facebook video ads going forward – both to extend their reach and to reinforce their message with consumers.

Facebook Inc (NASDAQ:FB): Greater share of retargeting dollars following Gmail Inbox changes

In late May, Google Inc (NASDAQ:GOOG) announced that it would begin to roll out a new Gmail Inbox that would automatically categorize a user’s mail into separate tabs for social notifications, deals/promotions, etc. Based on our conversations with marketers, these changes have resulted in a wide variability of results on ROI for email retargeting efforts during the past few weeks.

As a result, we believe advertisers have increasingly been open to alternative marketing channels to remain in front of customers. We believe Facebook Inc (NASDAQ:FB) stands to be the greatest beneficiary of this shift as the cost-effectiveness and reach of the FBX retargeting platform has been widely documented and shared amongst advertisers in recent months.