Is Facebook Closing In On YouTube?

  • YouTube's share of US online video advertising could expand in 2014.
  • Facebook has made good progress in its number of video viewers.
  • Directr acquisition could help YouTube serve small business better.

Is Facebook Closing In On Youtube

Google’s (NASDAQ:GOOG) YouTube recently acquired Directr, an online video editing company, for an undisclosed amount. The move is aimed at strengthening YouTube’s position as a video advertising platform. The value of digital video ad spends in the US is expected to more than double by 2017 from its value in 2013. We look at YouTube, the video advertising space in the US as a whole and what some of the competition is doing to bite into this fast growing market.

US Online Video Advertising Market

The estimated value of the online video advertising market in the US was $4.14 billion at the end of FY 2013. The market is expected to grow to over $9 billion by the end of FY 2017.

YouTube Market Share Of US Video Advertising

YouTube Revenue Estimate 2013

Google does not give a break up of its revenue from YouTube. So, estimates are the best bet while analyzing the leading online video platform. As per a report by eMarketer, YouTube generated about $5.6 billion in FY 2013. The report estimates YouTube’s net revenue to have been about $1.96 billion. In this case, net revenue is what YouTube earns after paying out Traffic Acquisition Costs (TAC) to the creators of the video content. The estimated post TAC revenue represents a YoY growth of over 65%.

Coming to YouTube revenue in the US, eMarketer estimates the former to have earned about $1.08 billion in the US, growing at just under 52% YoY. Of this, the report projected $850 million to be YouTube’s video advertising revenue. As per estimates of online video advertising spends in the US, the market was worth about $4.14 billion in FY 2013. So, YouTube’s share of that market would stand at about 20.5%.

YouTube Revenue Estimate 2014 and 2015

Going by eMarketer’s estimates of YouTube’s US revenue in 2014, the latter’s market share could go up further. The online video advertising market in the US is expected to grow by about 39% in FY 2014. In monetary terms, the segment is valued at about $5.75 billion. As per eMarketer’s estimate of YouTube’s revenue (video ads only), the video platform could command about 21.1% market share in the US.

Facebook’s Online Video Advertising Push

After having launched video ads in the US in March 2014, Facebook has been piling on the pressure. In May, the social networking giant launched its video ads in seven other countries. Just following this announcement, we analyzed the potential of Facebook’s video advertising revenue stream. Facebook doesn’t come across as a big immediate threat. However, it still is Google’s closest competitor in terms of unique video viewers in the US. Further, take a look at stats from Comscore over the last few months, and guess who’s closing the gap on Google?




Google Sites








Yahoo Sites




Amazon Sites




Source: Comscore

While Google’s unique video viewer numbers have been somewhat flat, Facebook’s numbers have been growing quite impressively. Yahoo’s numbers are volatile but mark an improvement since Jan this year, while Amazon has moved out of the top 10. Facebook seems to be making the right moves to take it further, and one of them is probably its July 2014 acquisition of LiveRail, a programmatic video ad buying platform or ad exchange.

The Facebook acquisition of LiveRail means that the former now owns a Real Time Bidding system (RTB) or ad exchange whose reach in the US has consistently been higher than that of Google and its properties. Here’s a look at the latest online video rankings by Comscore.

US Online Video Reach percent

It remains to be seen how much Facebook will gain from LiveRail, but when it comes to users/viewers, Facebook is not a competitor Google will take lightly. In July this year, Yahoo acquired RayV, a video broadcasting platform, after the former’s attempts to acquire Hulu and DailyMotion fell apart. Further, Twitter recently acquired SnappyTV, a video editing tool which allows advertisers to clip and edit live TV streams and share them on the internet.


Clearly the competition is mounting in the online video advertising space. YouTube’s recent acquisition of Directr appears to be aimed at strengthening its offerings to small businesses. Directr is a mobile app that offers tools to advertisers to create and edit videos.

More importantly, it’s an app that used to cost advertisers who wanted to use it to make videos. Following the acquisition, advertisers like small businesses who may or may not have been able to afford a video ad, will now be able to make videos free of cost, using the app. Apart from adding another dimension to advertising on YouTube, the acquisition could help Google gain further access to advertising spends by these small businesses.

Reportedly, small businesses spends about $140 billion a year on local advertising. Many small businesses these days leverage Facebook’s ‘pages’ to enhance their visibility and public presence, which comes at no cost of course! So much so that platforms like Facebook and Twitter are believed to be mulling the e-commerce option. At times like these, any additional support to the offering available for this segment of advertisers could be of value.

For the time being, Google is safely ahead of its competition. However, the online video advertising segment promises to be an interesting one as it unfurls. Google current valuations make it an attractive investment option. In line with our long term view of the stock, our Google stock analysis rates it a ‘buy’ at its current valuations.

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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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