Facebook Operating Metrics Point To Solid Growth In Q3

  • Facebook ad partner Nanigans recently released its Facebook advertising benchmark report for Q3 2014.
  • Nanigans reports a solid growth in CPC and CPM prices on the social network, even as the CTR continued to grow.
  • The Nanigans report hints at yet another quarter of solid revenue and earnings growth at Facebook.

Facebook Q3 2014 operating metrics point to solid growth

Facebook (NASDAQ:FB), the social networking giant with over a billion monthly users is expected to report its Q3 2014 results after market close on 28th October. Facebook revenue growth has accelerated over the last few quarters. However, in line with management comments in Q1 2014 conference call, the 61% YoY revenue growth Q2 came in lower than 71% in Q1. The growth rate will continue to decline over Q3 and Q4 as the comps get tougher and tougher. Facebook revenue growth over the last few quarters is displayed in the chart below.

 Facebook Revenue growth

Facebook revenue growth

As mentioned earlier, the revenue growth is expected to slow as the prior year comps get tougher over the coming quarters.

Monetization of mobile platform is Facebook’s key growth driver

Monetization of the fast growing mobile user base has been a clear driver of Facebook’s revenues with mobile contributing more than 50% of advertising revenues in the last three quarters.

Q4 2012

Q1 2013

Q2 2013

Q3 2013

Q4 2013

Q1 2014

Q2 2014

PC Ad Revenue (in %)

77

70

59

51

47

41

38

Mobile Ad Revenue (in %)

23

30

41

49

53

59

62

Can Facebook continue to grow at its current rate? To answer this, investors can look to the latest Nanigans Q3 2014 Facebook advertising benchmark report. Nanigans is a Facebook Strategic Preferred Marketing Developer and analyzed over 300 billion ad impressions on the ad network in Q3 2014.

Facebook operating metrics continue to grow

Nanigans reports three critical metrics for Facebook on a quarterly basis: cost per mille (CPM), cost per click (CPC) and click through rate (CTR). Nanigans Q3 2014 report shows a 195% YoY growth in global CTR on Facebook. The increase in CTR indicates improved targeting abilities of the Facebook ad platform. The average CPC rose 30% YoY while the CPM was up 284% YoY reaching $2.98. The increase in the ad rates can be primarily attributed to the higher CTR rates.

Facebook operating metrics

Facebook Q3 2014 operating metrics

Source: Nanigans global facebook advertising report Q3 2013

The CPC and CPM metrics are important drivers of growth as these are the average prices of ads sold online. Significant growth in these metrics through Q3 2014 should drive Facebook’s ad revenue per user higher, which is a measure of the effectiveness of Facebook’s monetization ability. However, the impact on Facebook ad revenues will not be in direct proportion to the increase in the CPC and CPM rates, due to other factors like number of impressions served and the composition of ads sold.

Higher CTR, an indicator of improved ad targeting

Nanigans reported a Q3 2014 CTR of 0.56%, which is a sharp increase from 0.36%, reported by Nanigans in Q2 2014. Improving click through rates are a proof of better targeting as better targeting leads to more relevant ads being served to the users. Relevant and interesting ads have a higher chance of getting clicked leading to a higher CTR.

In conclusion, going by the improvements in the three metrics reported by Nanigans, we look forward to solid topline and earnings growth in Facebook’s upcoming earnings release.

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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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