Facebook Inc (FB) 15 Sec Video Ads A Potential Earnings Opportunity


On Tuesday, Bloomberg reported that Facebook Inc (NASDAQ:FB) plans to come up with a 15 second video ad spot for advertisers later this year. These video spots will be sold on a daily basis, which is similar to the home page takeover, but these videos are unique in a way that it can be targeted to specific user groups, says a report from SIG by analysts Brian Nowak and Michael Costantini.Facebook Inc (FB) 15 Sec Video Ads A Potential Earnings Opportunity

Video ads to maintain user experience

The planned 15 second video ads will be available to advertisers for $1 million to $2.5 million per day taking in account the user base. Also, Facebook Inc (NASDAQ:FB) has fixed the ad at three times a day per user. According to the report, capping by the social networker will help to protect the user experience and “decrease the risk of engagement declines from too many ad units.”

 As of now there is not much information on “sizing the incremental” ads from Facebook Inc (NASDAQ:FB). However, the report believes the social networker will have to do away with some of the non-video sponsored news feed ad to maintain and protect the user experience.  According to analysts, some of the revenues from the new video ads cannot be counted as growth but only a budget shifting from other forms to video ads, given Facebook already accounts for a major percent of the North American display market over the past five years.

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Facebook Inc (FB)’s ads will be competitively priced

SIG analysts believe that Facebook Inc (NASDAQ:FB)’s massive daily average user base (DAU), which was around 700 million at the end of the second quarter, may result in competitive video CPMs (cost per thousand views). Based on the analysis, reports says that considering pricing and users’ ad load, for 25-34 year-olds effective video CPMs are expected in the range of $2 to $14, with the former being the combination of lowest price and highest ad load, and latter highest price and lowest ad load. On the same grounds, for 35-44 year-old, CPMS’s are expected at $3 to around $20.

If Facebook offers video ads at the higher end of expected pricing, even then the price is competitive with other offering from competitors. Assuming a range of $9-$12, which is the average of the top end pricing, the price is still a “modest discount to premium non-video display advertising”, says the report. Competitive pricing will surely help Facebook Inc (NASDAQ:FB) in luring advertisers for its video ads.

SIG report has ‘Neutral’ rating on Facebook Inc (NASDAQ:FB) stock with a price target of $28.

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