Seeking Alpha

Facebook lower; OTR's checks point to moderating ad growth

  • OTR Global's checks indicate Facebook's (FB -1.3%) news feed and FBX Exchange ad spend growth is moderating due to rising prices.
  • On a CPM basis, Facebook's ad prices rose 92% Y/Y in Q4, much faster than Q3's 42% clip and more than offsetting an 8% ad impression drop caused by the mobile shift.
  • News feed ads (account for the lion's share of Facebook's soaring mobile ad sales) generally carry higher prices than right-hand column ads, such as those delivered by the FBX Exchange (delivers targeted ads based on non-Facebook activity). FBX ad targeting and pricing remain a work in progress.
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Comments (24)
  • monfrere
    , contributor
    Comments (590) | Send Message
     
    man, who could have seen this coming? No one can predict the future. No one knows what's going to happen.
    13 Mar 2014, 01:51 PM Reply Like
  • gwynfryn
    , contributor
    Comments (4833) | Send Message
     
    I predict that the rotation of the Earth will bring darkness... but I know what you mean; once emotions come into play, then rationality goes out the window! FB will probably keep growing until its myriad fans lose faith, and as of now, it's hard to think of anything which will bring that about...
    14 Mar 2014, 12:17 PM Reply Like
  • monfrere
    , contributor
    Comments (590) | Send Message
     
    I think FB stock owners are ready to take profits but afraid to miss out on more upside. It's like when someone doesnt believe in buying a lottery ticket but chips into the office pool because it would hurt too bad if the office won and they didnt. Once the momentum turns a little it will start to drop and that will cause a drop which will cause a drop. That's before the numbers start coming in worse than expected and without the possibility of a wider correction of the market.

     

    I dont think people understand just how important this (the price for ads maxing out) problem is. You combine this with their ubiquitous presence and the admitted maximum ad density and growth becomes nearly impossible. That means a 12x multiplier instead of 100x for a stock price of about $8, assuming that nothing else goes wrong and the Whatsapp deal doesnt go through.
    14 Mar 2014, 12:27 PM Reply Like
  • Lester Hayes
    , contributor
    Comments (94) | Send Message
     
    Do you really think Facebook fans are moving the stock price higher? Institutions are what move stock prices both up and down, and a lot of institutions are buying what FB is selling, so the smart money would ride the wave.
    14 Mar 2014, 08:47 PM Reply Like
  • cashawash
    , contributor
    Comments (927) | Send Message
     
    Lester, please notice the ignorance of the "bear-trolls" who don't have a clue about the inner workings of the business of advertising.

     

    They misinterpret the statement: "Exchange ad spend growth is moderating due to rising prices."
    This statement means, that Facebook's news feed ads are so effective, that demand for the finite amount of ad space is so intense; Facebook has pricing power. They have more demand than they can shake a stick at! Facebook management addressed this issue at the last CC.

     

    It's similar to the demand for Super Bowl ad minutes. Demand for ad minutes is beyond the supply, therefore prices are bid up and the network telecasting the event has power to price at whatever the market will bear.
    Evidently, the prattlers on the short side don't have a clue. They are just gambling, they don't need to understand the inner workings of: the economics of the market place, nor advertising, nor pricing power, nor strategy and tactics.
    They are just gamblers, and their sole purpose is scare you out of FB stock by whatever means necessary. Their line of B.S. doesn't even have to make horse sense!

     

    With the launching of Instagram video ads, in the past week, you might see a similar trend when FB management reports at the next CC.
    Stay strong!!!
    15 Mar 2014, 11:11 AM Reply Like
  • monfrere
    , contributor
    Comments (590) | Send Message
     
    cash, I can't believe you honestly think that I think that Lester selling his 100 or 500 shares is going to make a difference in the stock price. This is a discussion board. I think the stock is going to go down because Facebook can't grow enough to support the current valuation. If you think that video ads are going to make that much of a difference you should buy. Me? I see a max of $3M per day which is about a billion dollars per year, which isnt going to cut it as far as justifying their price. They need to add at least 6B per year for the next two years to even try to maintain a value of $200B. I know I'm preaching to people who dont want to hear it, it's ok.
    17 Mar 2014, 09:10 AM Reply Like
  • Lester Hayes
    , contributor
    Comments (94) | Send Message
     
    Where do you come up with $3m per day? If you had a foundation for this number then i believe people would listen, because nobody wants to lose money.

     

    FB's market cap is huge, and i don't think anyone is denying that fact, but it's hard to put a value on a company that's membership is equivalent to the fourth largest country in the world. To put that into perspective, Seeking Alpha would have to add a new member every day for the next 37 years to reach FB's membership.

     

    I'm not a Facebook type of person, i don't even have a picture on my account, but i use it every day to access Paper, which is the best app on my phone/tablet.

     

    If i was an advertiser and wanted to target you, i wouldn't rely on TV ads, i would use Seeking Alpha, because i know where you spend most of your time. There's no other form of media where i can be assured of a target audience.
    17 Mar 2014, 09:00 PM Reply Like
  • Lester Hayes
    , contributor
    Comments (94) | Send Message
     
    And you still haven't answered my question regarding your comment about "growth of average price". Where in this tidbit of information does it say "growth of average price"?
    17 Mar 2014, 09:08 PM Reply Like
  • monfrere
    , contributor
    Comments (590) | Send Message
     
    Hi Lester, not sure what you are referrign to in your second question, I dont see anything about growth of average price is my comment or yours. Can you ask your question again?

     

    For the 3M per day, that's the number that's being bantered about. 1M -2.5M per day to reach the entire audience. Some analysts seem to think that they might be able to run more 2 or 3 per day at the low end of that price and although I don't personally believe it, I gave them credit for 3 at 1M or 2 at 1.5M. If you'd like them to do 3 at 2.5M, that's still less than $3B even if you assume that it is 100% marginal revenue and does not at all cannibalize their other products (people just redirecting funds from static ads to video ads) or drive the prices of their other products down, or cause a few less people to log on.

     

    The question to ask is "how much revenue do they need to justify 200B market cap in the long term" and then figure out if you think that any amount of magic they can work can get them even half way there. For me personally, the answer is obvious and it is no. You might have a different view.
    18 Mar 2014, 09:01 AM Reply Like
  • Justin Hohn
    , contributor
    Comments (718) | Send Message
     
    Lester raises a very salient point about "being assured of a target audience." This is something that Facebook is failing to deliver to advertisers.

     

    http://bit.ly/NrQoeK

     

    The ability for a business to initiate contact with its "fans" via FB is being reduced. You may have 100 people that "like" your page, but a news update from you may only show up in the newsfeeds of six people! Why? Because Facebook steps in as arbiter of what you are allowed to communicate with your "likes." FB determines what is or isn't spammy to your "likes."

     

    So you setup a page. People like it. They don't get updates because of FB algorithm. Then FB charges you an ad fee to reach the people that already (via "liking you") asked to be reached.

     

    FB is taking care of itself moreso than its customers (advertisers, businesses). There is no "assurance of reach" on FB.

     

    Moreover, FB keeps changing the rules. it keeps shrinking the "organic" reach of your business' FB page so that you have to BUY the right to penetrate their filtering algorithm.

     

    By alienating its advertisers and regularly changing the rules (which scrambled the entire valuation of a FB ad buy), FB is destroying a lot of the potential value in its advertising platform.

     

    http://bit.ly/NrQoeM
    18 Mar 2014, 04:01 PM Reply Like
  • Lester Hayes
    , contributor
    Comments (94) | Send Message
     
    This was your comment from my post in a different thread.

     

    "Your comment is timely since yesterday a study came out that said the growth of average price is slowing significantly for Facebook contradicting your claim".

     

    Maybe you're posting so much negativity that your brain can't comprehend the last thing you posted. Can you please explain what "growth of average price" means?
    18 Mar 2014, 11:06 PM Reply Like
  • Lester Hayes
    , contributor
    Comments (94) | Send Message
     
    Justin,

     

    Both of those articles are bullish for Facebook. Do you think Facebook is a not for profit company? Why wouldn't they charge a company for the rights to access people who like their product? Information is what makes Facebook profitable.

     

    Do you think ad agencies, or business are going to walk away from all of FB's data, because they're charging them? No, they'll continue to pour more money into this company, so they have the rights.

     

    Thanks for posting those articles, as I'm now more convinced of this ad revenue juggernaut.
    18 Mar 2014, 11:24 PM Reply Like
  • Justin Hohn
    , contributor
    Comments (718) | Send Message
     
    In a sense-- yes, charging for access to all that data is indeed bullish for FB. But will it prove a Pyrrhic victory? I suspect it will, but I could be wrong.

     

    Ad agencies won't walk away from all of FBs data unless 1) that data doesn't turn into actual value or 2) there are other ways to assemble similar data, or proxies for that data from Google or Apple (iAd).

     

    FB has yet to prove that it can substantially monetize its massive user base without killing the goose laying the golden eggs. By "substantial" I mean as a fraction of total users.

     

    ARPU is trending higher, which is definitely bullish for FB. Net income is rising faster than user expansion.

     

    That's to be expected, though. There is always a gap in time between squeezing of the goose and the death of said goose.

     

    Substitutes for FB become more valuable as FB attempts to cash in. When the pain of using FB becomes sufficiently high, people will ditch it for something else.

     

    But not before--for a quarter or two anyway-- FB rides high on the hog. I think this year is that time.

     

    FB is trying to strike a delicate balance. If a cashes in its users too slowly, it risks missing a huge opportunity to squeeze the goose before it dies of old age (in the info age, things change so fast). But if it squeezes too hard, it forfeits golden eggs because of accelerating the goose's demise.
    19 Mar 2014, 09:12 AM Reply Like
  • monfrere
    , contributor
    Comments (590) | Send Message
     
    Hi Lester, I tend to try to keep things in the thread which I said them. It would have made more sense in the other thread. I think you are using the word "negativity" as a bad thing but I'm not sure that it is. It isn't about positive thinking, it's about reality. When something is awesome, I post nothing but awesome things. When something is bad, I post bad things. Just a reflection of reality, not a reflection of my inner bias.

     

    As for your question, FB can grow their ad inventory in 4 ways: more users, higher average time per user on facebook, higher ad density and price.

     

    Users * Time * Density * Average price = Revenue
    Users * Time * density = impressions
    ...so
    Impressions * Price = Revenue.

     

    It used to be that all 4 were growing pretty quickly. As of Q3 of last year they explicitly stated that they felt that their density had hit its maxium and beyond that, as users moved the mobile, it went down (you can show less ads on mobile than you can on a desktop).
    This was so much the case that impressions actually dropped 8% last quarter. Revenue was up, so that means that Price was up. Facebook even disclosed that this price was up, on average, about 92%.
    The problem though is that price was up so much because people were willing to pay much more for newsfeed ads than they were for those side bar ads, because of the high click through rate. What is happening now is that that 92% growth is much lower even as impressions continue to decline. Since impressions are declining and average price growth is declining, (still growing, but growing much slower) that means that FB overall growth is slowing and heading towards a top.

     

    I hope that helps. good luck with your investing!
    19 Mar 2014, 09:15 AM Reply Like
  • Justin Hohn
    , contributor
    Comments (718) | Send Message
     
    How is it that Whatsapp even came to attract such a massive user base? Couldn't many of these people communicate the same way via FB?

     

    Surely they could.

     

    But FB has annoying ads that WA doesn't. Users will eventually respond to monetization. How exactly-- and when-- only time will tell.
    19 Mar 2014, 09:16 AM Reply Like
  • monfrere
    , contributor
    Comments (590) | Send Message
     
    Lester, as for your response to Justin, the answer is a question of trust. Facebook is asking advertisers to trust them to deliver sales and since they screwed their customers on this one, customers will look for an opportunity to screw them back. It's just the way of the world. Facebook wouldnt be screwing it's customers unless it thought it needed to and you need to ask yourself what could be so bad that they would need to screw their customers?
    19 Mar 2014, 09:17 AM Reply Like
  • monfrere
    , contributor
    Comments (590) | Send Message
     
    http://yhoo.it/1gC6XjB
    18 Mar 2014, 09:02 AM Reply Like
  • gwynfryn
    , contributor
    Comments (4833) | Send Message
     
    That's more or less what I've been expecting since last year, but it is still only one article; marketeers have faith in ads, in general, so maybe they are not as diligent as they should be in checking for bang for the buck?
    18 Mar 2014, 10:44 AM Reply Like
  • monfrere
    , contributor
    Comments (590) | Send Message
     
    Test, then adjust, test, then adjust. They are seeing the results of their tests now and will begin adjusting.
    18 Mar 2014, 11:35 AM Reply Like
  • Lester Hayes
    , contributor
    Comments (94) | Send Message
     
    Same guy that wrote an article in September about FB advertisers not liking FB. I guess they like FB enough to continue to pour money into FB ads.
    18 Mar 2014, 11:32 PM Reply Like
  • cashawash
    , contributor
    Comments (927) | Send Message
     
    Lester, you are correct in your assessment that those articles, referenced on the thread, add much support to the bullish case for Facebook. Let's just face it, that blogger has an axe to grind. He has a history of being negative on FB, as are all the bullish / short players on the thread, shopping such trifles, to support pretentious and specious arguments.

     

    If the Facebook platform wasn't as effective as advertised there wouldn't be all this hoopla from a known Facebook critic, and the perennial bearish / short side throng -- on this thread -- who has a penchant for coalescing around dated, negative news reports on FB, and have shown a penchant for repeatedly sensationalizing trifles -- like we have with the criticism from the blogger.

     

    This adds weight to the bullish point, that the bearish / short side brethren, on this thread, have lost their way, by wasting their precious time, sensationalizing the gnats on the horse's derriere, than presenting real food for thought.

     

    Monf, JH, et al, you guys are so exposed!
    You need to quit trying to shop trifles that only exposes, embarrassing and weak bearish arguments, that are woefully lacking in substance and credibility.
    It is time to re-load and get back to the realm of good ideas, eh!
    19 Mar 2014, 10:31 AM Reply Like
  • monfrere
    , contributor
    Comments (590) | Send Message
     
    cash, there was nothing in your post even remotely resembling a coherent thought. If you could attack our arguments, you would, but you can't so you demonize us. Unfortunately, demonizing us is not an argument and you should aspire to be more than a monkey flinging poop.
    19 Mar 2014, 10:37 AM Reply Like
  • Justin Hohn
    , contributor
    Comments (718) | Send Message
     
    FB's frequent changing of the rules is self-defeating. Marketers trying to do that test-adjust sequence are finding the need to start over from scratch just when they are getting some traction from their iteration.
    18 Mar 2014, 04:05 PM Reply Like
  • Justin Hohn
    , contributor
    Comments (718) | Send Message
     
    Cash, the bears are the only ones even attempting to make an argument.

     

    The bullish side of this as verbalized by you consists of: Because Facebook!
    19 Mar 2014, 10:33 AM Reply Like
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