Atlas To Drive Facebook Revenue And Earnings Growth

  • Facebook last week launched the Atlas ad platform, which is Facebook’s most direct competition to Google Ad network.
  • The Atlas platform will help to leverage Facebook’s huge user data to help advertisers improve ad targeting across Facebook ad partners.
  • The platform will help Facebook benefit from the rapid growth in display ad market, leading to continued growth in revenue and earnings.

Facebook Atlas potential

Facebook (NASDAQ:FB), last week, rolled out its revamped ad platform Atlas, which was acquired from Microsoft earlier in the year. The Atlas platform will help advertisers buy ad space on Facebook’s partner websites, taking and applying the power of Facebook’s data and accompanying insights outside of the social platform for the first time. This will be Facebook’s most direct competition to Google’s (NASDAQ:GOOGL) Ad network program and a clear threat to Google’s network revenues. What does it mean for Facebook and what will be the impact on Google are important questions to be answered?

Online advertising: The bread and butter revenue streams of Facebook and Google

Google and Facebook, with their billion plus monthly users offer unparalleled scale in the world of online advertising. The huge user base offers advertisers a vast audience to target, and this will only get bigger as the world continues to migrate from offline to online. Facebook and Google generate a lion’s share of their revenues from advertising and any direct impacts to these revenues would impact the financials substantially.

Facebook and Google ad revenue potential

Facebook as well as Google have generated over 90% of their last twelve month (LTM) revenues from advertising, a measure of how important online advertising revenues are to the financial success of each of them.

Facebook’s Atlas platform: Taking Facebook’s data power outside the social platform

However, Facebook until recently lacked a world class ad network, and the revamped Atlas platform could be a solution in this regard. The platform will enable advertisers target users across multiple devices, and help Facebook sell ad space outside of the social network. The result is that Facebook can continue to grow its topline and bottomline without compromising the user experience of the social platform. The bottom line is that advertisers can improve ad targeting across devices by leveraging Facebook’s huge collection of user data.

Online advertising industry

According to a post on Techcrunch, the online advertising industry is expected to grow to a value of $160.6 Billion, up from $121 billion in 2014. More importantly, the display ad market is set to outgrow the Paid search market, as displayed in the below chart.

Internet ad spend by type

Facebook’s new move will help the company compete against Google in the display advertising business. Google is the undisputed leader in the paid search market accounting for 76% of the paid search revenue in Q1 2014. However, Google lacks such dominance in the display ad market, which presents an opportunity for Facebook to exploit.

Facebook revenue and earnings growth could explode

Facebook has delivered solid topline and earnings on account ad innovations within the social network, leading to better monetization of the social network users. However, the financial and monetization improvements have always been accompanied by a risk of negatively affecting the user experience on the social network as users find their Facebook timelines cluttered with advertisements. In this sense, the financial performance of Facebook had to smartly balance the user experience and financial benefits.

However, the launch of the new Atlas platform will effectively lead to further revenue sources without any compromise on the user experience of Facebook users. The new display ad revenue from partner sites will in effect present Facebook’s management with a second lever of growth, apart from monetizing the Facebook platform itself. The upside in terms of revenue and earnings growth could therefore be tremendous.


Google generated 25% of its LTM ad revenue from its display ad partners, totaling to $13.5billion or 25% of the display ad market share. While it will tough to replicate the scale of Google, Facebook’s huge user base could help it gain a substantial share of the fast growing display ad market. The Atlas platform could well be Facebook management’s with a second lever of topline growth. Topline growth accompanied by Facebook’s cost controls, as witnessed in the last few quarters, will continue to deliver solid earnings growth over the coming years.

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Neither Amigobulls, nor any members of its staff hold positions in any of the stocks discussed in this post. The author may not be a certified/registered investment advisor, and the opinions expressed should not be treated as investment advice. Buying and selling of securities carries the risk of monetary losses. Readers/Viewers are advised to carry out their own due diligence and consult their investment advisors before making any investment decisions. Neither Amigobulls, nor the author have any business relationship with any of the companies covered in this post.

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