The recently-signed strategic deal between Facebook (FB) and Mondelez International (MDLZ) reflects the growing importance of the social networks as advertising partners. The deal encompasses 52 countries and Facebook’s enhanced reach is expected to boost Mondelez’s footprint in the long run.
Per eMarketer, Facebook is set to benefit significantly from a shift in marketer spending from traditional to digital advertisement. The growth will be particularly driven by higher mobile ad spending.
In the recently concluded fourth quarter, Facebook’s mobile ad revenues were $1.25 billion, which comprised 53.0% of ad revenues, up from 49.0% in the previous quarter. Advertising revenues were driven by increasing mobile engagement, higher number of marketers, continuing investment in new products and robust performance of its newsfeed ads.
We believe that Facebook has gained significant traction in its mobile ad business within a very short span of time. This combined with the massive user base and its ability to track personal details over time makes it a formidable force in the online ad market.
Initiative such as Internet.org is expected to boost Facebook’s attraction for marketers, going forward. As part of the initiative, Facebook is seeking partnership with three to five wireless carriers which will roll out telecom networks and offer data services at affordable prices particularly in developing countries.
Facebook is already partnering on a regional basis (in Paraguay and Philippines). Moreover, Facebook’s recently acquired short-message service provider WhatsApp has significant international presence, particularly in Asia and Europe, which will expand its footprint, going forward.
If this initiative succeeds, it will connect billions of people who will be able to access basic data services such as search and Facebook. This opens up a totally new set of Facebook users, who marketers can target, and for a consumer-oriented company such as Mondelez, this presents a huge growth opportunity.
We believe Facebook will continue to gain traction in the digital advertising market in 2014. Instagram’s growing popularity and new products will help the company to face intensifying competition from the likes of Google (GOOG), Yahoo (YHOO), Snapchat, Tumblr and Pinterest, going forward.
Currently, Facebook has a Zacks Rank #2 (Buy).
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