FB Stock: Is Facebook Inc (FB) Eating YouTube's Lunch- Alphabet Inc (GOOGL) ?

This may be the next big feature of Facebook

  • Facebook surpassed YouTube in Christmas social video campaign viewership and engagement in the UK.
  • Facebook has been testing the introduction of a dedicated video tab inside its mobile app.
  • Can Facebook take a big bite of YouTube's market share in 2017?

Facebook Inc. (NSDQ:FB) has been in the eye of storm recently due to issues like fake news and overstatement of metrics. However, advertisers are not going to flee its platform. In fact, Facebook is slowly taking the fight to industry leader Alphabet Inc's (NSDQ:GOOGL) YouTube in terms of online video viewership and advertising. New Research  also shows that video content is outperforming all other types on Facebook. Here's how Facebook is edging closer to YouTube, slowly and steadily reducing its web video supremacy.

Facebook Is Challenging YouTube And TV For Ads

Facebook has been testing the introduction of a dedicated video tab inside its mobile app among a select group of users over the past year - a move Morgan Stanley analysts predict will help the social network capture a greater share of the TV ad market. This move will also help Facebook take on Youtube, trying to become a complete web video portal. This may also eliminate Facebook's weakness in the delivery of video content, which is still very much focused on distribution and in-feed viewing. Whereas YouTube benefits from discovery and intent.

YouTube’s biggest strength is its ability to offer customers a continuous viewing experience across multiple connected devices. Facebook seems to have come up with an answer to this as well with another of their recent move. Its new feature allows live streaming of videos on your TV. 85% of videos on Facebook are watched without sound where as Youtube has a more immersive experience. YouTube thus serves as a more complete, cinematic experience than Facebook. If the new dedicated video tab becomes operational then this competitive advantage of Youtube can be reduced to a great extent.

TV ad revenue in the US totaled close to $70 billion in 2015, according to PwC’s Media Outlook. Consumers continue to increase their time spent consuming digital media, which has put pressure on traditional TV ad spenders to increase their ad budgets on digital channels like Youtube and Netflix (NSDQ:NFLX). The dedicated video tab will solve advertisers reservations about Facebook videos being too fragmented and interspersed between feeds. So Facebook may take a huge pie of digital video advertising revenue from Youtube.

FB_video_new

Source: Business Insider

How Close Can FB Get To YouTube

The category YouTube belongs to is "Google websites," which contributed $16.1B or 72.3% of the Google segment top-line in 3Q16. It is not clear actually how much YouTube contributes to top line figures, but it is estimated to be around $3.1B for 3Q16 by Wedbush. Youtube is expected to grow at a CAGR of 30% through 2020. However, slowly and steadily Facebook is catching up. Recently it was reported that Facebook overtook YouTube for Christmas social video campaigns in UK.  90% of all interactions and 60% of all views of Christmas TV adverts on social were via Facebook, while just under 40% of views were on YouTube, proving Facebook is where audiences head to watch and share the content they love.

Also Read: FB Stock: Facebook Inc Could Gain The Most From A Snapchat IPO In 2017

In the US alone digital video advertising is estimated to be worth $23.5B by 2020, then the global market size is much bigger. There were 3.1 Trillion Facebook video views between November 2015 and November 2016; that's a staggering increase of 94% year-on-year. With Facebook users spending an average of 50 minutes per day on the site, and over 100 million hours of daily video watch time, the reach and influence of Facebook video content is only set to increase.

Though some of these numbers may not be very accurate due to Facebook's overstated metrics. Even if you go by moderate projections of these numbers, Facebook is well positioned to take on Youtube in digital video advertising space. The ever increasing market size gives these two players enough reasons to fight for.

The Next Big Digital Ad Revenue Battle Is On Videos

Most of the consumer internet traffic in the future will be around video. According to a Cisco Forecast, videos will represent 69% of all consumer-based Internet traffic by 2017; this is expected to rise to 80% by 2019. Zuckerburg himself has said, “I think video is a megatrend, almost as big as mobile.”

The only place in videos where Facebook is lagging drastically is original content creation, but here it is taking the Youtube way by paying both individual celebrities and news outlets to use it. There are also recent reports of some famous content creators leaving Youtube and music industry not being happy with payments from Youtube, so Facebook has a ray of hope here as well. (See Also: FB Stock: Don't Sell Facebook Inc Stock, But Do Read This )

The US digital advertising industry will continue to experience remarkable growth through 2021 to reach nearly $100 billion in annual revenue, driven primarily by the sustained migration of ad dollars from traditional TV to digital video and the continued increase in social spending. Digital video advertising will grow faster than any other segment over the next five years, as consumers shift time spent online to phones and tablets. So we are definitely headed for a ‘war for video supremacy' going ahead.

Fb_2017e

Source: Forbes

It will also be difficult to change consumers' default habit of going to YouTube for video content, but for that Facebook needs to come up with the right video offering which will entice both consumers as well as advertisers.

Facebook will deliver close to $31 billion in revenue in 2017 going by a slower growth of 25% over Facebook's TTM sales number. Its sales number can shoot up drastically if it captures a sizeable chunk of the digital video ad revenue going forward and FB stock would gain from this in a big way.

Offering a dedicated connected viewing and search experience is no doubt on the cards. If it can achieve this successfully and maintain its push into premium content, then Facebook may take the top spot as a complete entertainment and social hub. It's really a daunting task to go after YouTube, but the future looks bright for Facebook Inc.

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