Facebook Metrics See Strong Growth In Q4 2014

  • Facebook ad partner Nanigans has released its latest global Facebook advertising benchmark report for Q4 2014.
  • Nanigans reported a solid growth in all the major metrics of CPC, CPM and CTR.
  • The Nanigans report hints at a strong holiday quarter for Facebook.

Facebook (NASDAQ:FB) is scheduled to report its Q4 2014 results after market close on 28th January. In our earlier Facebook Q4 earnings preview, we had pointed out growth in engagement metrics to be the key drivers of Facebook revenue and earnings in Q4. The conclusions of the pew research report are further accentuated by the latest Nanigans global Facebook advertising benchmark report for Q4. The Nanigans report points to solid growth in all key operating metrics, which indicates that higher engagement is leading to more number of ad dollars for the social networking giant.

Facebook Revenue Growth Slowing

Facebook revenue growth has slowed through the first three quarters of 2014. The company reported a 72% YoY revenue growth in Q1 2014, which slowed to a rate of 59% YoY in Q3 2014. The slowing growth rate is in-line with expectations, as the base comps get tougher and tougher with each passing quarter.

Facebook revenue growth last 8 quarters

Monetization Will Be Key Growth Driver

Facebook monetization improvements will be the key drivers of Facebook revenue and earnings growth as the Monthly Active user (MAU) growth is slowing down.

Facebook user growth

Facebook user monetization will be driven by having engaged users. Hence, an improvement in Facebook user engagement metrics and monetization metrics is something which will be on investor’s radars in the upcoming Facebook earnings release.

Facebook Growth Will Be Strong In Q4

Facebook user engagement is measured by metrics like DAU/MAU (daily active user/monthly active users) and click through rate (CTR). These metrics are directly linked to Facebook’s user targeting. Improved targeting leads to higher CTR’s, which in turn drives the cost per click (CPC) and cost per mille (CPM) higher. Better targeted ads and higher CTR’s are associated with less intrusive ads from a user perspective which boosts user engagement, leading to a higher DAU/MAU ratio. Higher CPC and CPM also lead to higher ad revenue per user, which is a measure of Facebook’s monetization capabilities.

Nanigans reported a strong growth in Facebook’s key metrics for Q4. The growth in the metrics of CTR, CPM and CPC is seen in the following image.

Facebook operating metrics for Q4 2014

Source: Nanigans Global Facebook Advertising Benchmark Report

Nanigans reported a 197% YoY growth in Facebook click through rate, which was driven by a 332% YoY growth in e-commerce CTR and 122% growth in gaming customers CTR. The cost per click grew 37% YoY, up from 30% growth in Q3 2014. The 307% growth in CPM was driven by strong growth in e-commerce CPM (360% YoY) as well as gaming CPM (368% YoY). However, it would be futile to estimate Facebook revenue solely on the CTR, CPC and CPM growth, as Facebook’s number of ad impressions have been constantly reducing over the last few quarters.

The decline in ad impressions is driven by the shift from desktop to mobile usage where people are shown fewer ads as compared to desktop. The decline in number of ad impressions has accelerated from 17% YoY decline in Q1 to 56% in Q3 2014. Assuming that the decline in number of ad impressions will continue and come in at 60% in Q4, Facebook will still beat the street’s estimates by a significant margin, based on the numbers from Nanigans.

In conclusion, going by the improvements in the Facebook metrics reported by Nanigans, we look forward to strong growth in Facebook revenue and earnings in the upcoming Facebook earnings release.

For a video analysis of Facebook, watch our Facebook stock analysis.

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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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Comments on this article and FB stock

stocksman
bearish
Facebook ad revenue growth is fine but it is just not sustainable. Eventually advertisers will worry about the real ROI rather than counting number of FB followers their brand has. Anyway most of the followers are fraud.
1 reply
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