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Facebook Inc (FB) Shares Surge After Auto-Play Video Tests Revealed

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Facebook Inc (NASDAQ:FB) shares soared to a new all-time high today, rising nearly 2% to top $55 per share after the company announced that it started testing auto-play video ads. The social network’s shares have risen 105% so far this year.

Facebook Inc (FB) Shares Surge After Auto-Play Video Tests Revealed

Facebook announces auto-play ads

According to Facebook’s newsroom, “a small number of people” will start seeing video ads for the movie Divergent on their News Feeds. These ads will start playing automatically as soon as they come into view on the screen—without users having to click to get them to play. However, they won’t have any sound. The social network said they will work in a way that’s similar to “how they behave when shared by friends or verified Pages.” Users who don’t want to watch the video can just scroll or swipe right past it.

If users click or tap the video to play it full-screen, the sound will then be able to be heard. When the video ends, two more videos will appear, enabling Facebook users to discover more content from the same advertiser.

The social network said that on mobile devices, the videos which play automatically “will have been downloaded in advance when the device was connected to Wi-Fi.” This shouldn’t consume users’ data plans, even if they aren’t connected to Wi-Fi when the video is played back.

Will there be backlash from Facebook users?

Some analysts were concerned about this aspect of video ads, saying that they were concerned about backlash if Facebook Inc (NASDAQ:FB) uses people’s data plans to play these videos without their permission. This appears to address those concerns.

However, it suggests that users’ devices will be downloading videos onto their devices without their permission. The announcement doesn’t say how long those videos will remain on devices which download them. In theory, these videos could take up a lot of space, particularly on 16-gigabyte devices, some of which had trouble even downloading Apple Inc. (NASDAQ:AAPL)’s iOS 7 update simply because of the large size of the file. It might not take long for users to find all of their space used up by unwanted videos from Facebook.

Analysts like Facebook’s video ads

Analysts have been largely positive on Facebook Inc (NASDAQ:FB)’s plan for auto-play video ads. Susquehanna Financial Group upgraded the social network’s stock to Positive with a $68 per share price target. They did not include video ad revenue in their estimates because of the uncertainty regarding the timing of the complete rollout.

However, they estimate that Facebook video could generate $1.1 billion in annualized revenue, even if the ads are sold at an $8 cost per impression, compared to other online video ads, which are priced at $20 per impression and above. They see this much revenue from video ads even if half of the ones sold actually replace existing Sponsored Stories. They see higher pricing or lower cannibalization rates as offering “even more upside” to their estimates.

Capping ad load a positive for Facebook

Although many investors and analysts have been concerned about Facebook Inc (NASDAQ:FB)’s decision to cap ad loads, analysts Brian Nowak and Michael Costantini at SIG see this as a positive because it will restrict supply growth, thus leading to faster growth in ad dollars. They’ve seen a similar strategy from Google Inc (NASDAQ:GOOG), and with cost per impression on Facebook’s Sponsored Stories still low at a 60% to 70% discount to other display players, they expect pricing to move higher.

The analysts increased their 2014 and 2015 revenue estimates by 6%, putting them 4% of Wall Street’s consensus estimates for each of the two years.

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