Is Facebook Inc (FB) Ad Revenue Vulnerable?

If the theory came were proved correct, events would bear an uncanny resemblance to the bursting of the dot-com bubble, with Facebook Inc (NASDAQ:FB) taking the role of Yahoo! Inc. (NASDAQ:YHOO).

Is Facebook Inc (FB) Ad Revenue Vulnerable?

However as Julien Codorniou, Facebook Inc (NASDAQ:FB)’s platform director for Europe, the Middle East, and Africa explained to Business Insider, the system essentially roots out badly performing ads. The ads are funded by the revenue that they produce, and Codorniou claims that he does not know of any client that is wasting money on ads that don’t generate revenue.

Facebook’s mobile ads: A safe system

In fact it could be argued that the mobile app install ads which are the cause of the controversy could even protect Facebook’s revenues. App creators buy Facebook ads to encourage people to download their product, and are obviously hoping to make more money through sales than what they spend on the ads, in a practice known as direct response advertising. If ads bring companies more business, they will continue to advertise. If not, they stop.

Facebook Inc (NASDAQ:FB) COO Sheryl Sandberg recently attempted to explain this to investors, but it would appear that they didn’t fully understand. Analysts on the Street consistently underestimate Facebook’s revenues, partly because of a lack of understanding of recurring and additional ad business produced by direct response ad buys.

Large corporations

Another factor in Facebook’s favor is that the majority of its biggest advertisers are not venture-capital funded tech startups, but rather huge brand names such as Procter & Gamble, Samsung Electronics Co. Ltd. (LON:BC94) (KRX:0059935), Amazon.com, Inc. (NASDAQ:AMZN), Wal-Mart Stores, Inc. (NYSE:WMT), and Target Corporation (NYSE:TGT). All of these big companies have apps that they want consumers to download.

In conclusion it would seem likely that Facebook Inc (NASDAQ:FB) would see a decline in revenue should a recession hit, but that is because of a general trend towards a decrease in advertising budgets if the wider economy takes a downward turn, and not because of an over-reliance on tech start ups funded by venture capitalists.

via: BI




About the Author

Brendan Byrne
While studying economics, Brendan found himself comfortably falling down the rabbit hole of restaurant work, ultimately opening a consulting business and working as a private wine buyer. On a whim, he moved to China, and in his first week following a triumphant pub quiz victory, he found himself bleeding on the floor based on his arrogance. The same man who put him there offered him a job lecturing for the University of Wales in various sister universities throughout the Middle Kingdom. While primarily lecturing in descriptive and comparative statistics, Brendan simultaneously earned an Msc in Banking and International Finance from the University of Wales-Bangor. He's presently doing something he hates, respecting French people. Well, two, his wife and her mother in the lovely town of Antigua, Guatemala. To contact Brendan or give him an exclusive, please contact him at theflask@gmail.com