Facebook: Battling Google For Eyeballs

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 |  About: Facebook (FB), Includes: GOOG, GOOGL
by: Jason Russ

Summary

Mobile ad spending is growing at a phenomenal pace.

Facebook and Google dominate the mobile ad market.

Facebook is showing strong growth in mobile ad market share while Google's share is declining.

Although both Google (NASDAQ:GOOG) (NASDAQ:GOOGL) and Facebook (NASDAQ:FB) have gone into some interesting sideline businesses recently, the bread and butter of both companies remains their advertising revenue.

The following chart (Source: Valuewalk) shows the ad revenue for both Google and Facebook over the last three years broken down by desktop and mobile.

While desktop revenues have been leveling off - and may even start declining - the mobile revenues are growing extremely fast.

According to eMarketer, the mobile advertising market grew by a whopping 105% in 2013. It is expected to grow a further 75% in 2014.

In addition to the mobile market growing incredibly fast, the importance of it to Facebook is far greater than that of Google. In 2014, mobile revenues are expected to account for 63.4% of Facebook's net digital ad revenue total. For Google, that percentage is expected to be 33.8%.

For Facebook especially, the present and the future is in its mobile ad revenue growth.

Mobile Advertising Share

The major growth going forward for all online advertisers is in the mobile arena as opposed to the desktop arena. Facebook is the company that is gaining the most market share in this key space.

Google and Facebook together are incredibly dominant in the mobile ad space. The following table shows market share for worldwide mobile ad revenues:

It can be seen in those numbers that Facebook is taking a larger piece of this ever-growing pie as market share for FB is expected to increase from 5.4% in 2012 to 21.7% in 2014. Meanwhile, Google has actually been losing market share. The other players are quite small compared to the dominant two and are expected to remain that way for years to come.

Facebook's Opportunity

Using the estimates in the above table, we can calculate that Facebook should achieve mobile ad revenue of about $6.8 billion for 2014. eMarketer expects worldwide mobile internet ad spending to reach about $95 billion for the year 2018. I will conservatively assume that Facebook can continue to grab some additional market share and reach 30% by then. That would calculate to revenue of $28.5 billion in just the mobile ad space for year 2018. By way of comparison, in the last 12 months, Facebook recorded total revenue of $8.9 billion.

Conclusion

Although Google grabs more total eyeballs today, Facebook is gaining incredibly fast in the most important area: mobile ads. In just two years (from 2012 to 2014), the company is expected to quadruple its market share of worldwide mobile ads. The mobile ad market as a whole is expected to continue its terrific growth -- 2018 revenues are estimated to be 3x the 2014 revenues.

I'm not quite ready to say when Facebook will win the war of eyeballs vs. Google, but they are looking as if they will at some point. I assumed a 30% market share for Facebook by 2018, but that figure could easily be higher.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.