Investors should expect robust growth in Facebook's Q4 ad revenues, according to a confidential straw poll of the social network's biggest advertising clients by Business Insider. Together, the media buyers we spoke to represent several hundred million dollars in annual Facebook adspend.
In Q3, ad revenue grew by ~$200 million year on year, from about $800 million to $1.09 billion (total revenue rose to $1.3 billion). Wall Street analysts are expecting an average of $1.52 billion in total revenues, which is sequential growth of $258 million including non-advertising payments revenue from games and apps. Payments revenue was $176 million in Q3 2012 -- implying that sequential ad revenue growth will be minimal (ie $258 million - $176 million, plus growth).
Our research suggests you should not be surprised if Facebook beats that topline, however. In Facebook's prior fourth quarters, growth has been solid because the holiday shopping season drives so much adspend. (Year-on-year growth in Q4 ad sales was greater than $200 million from 2010 to 2011, for instance.)
Analysts may expect only modest growth in Facebook revenues because the company faced some negative sentiment in the quarter. It has not completely dealt with the fake users/fake likes issue, which is a hot-button for the smaller advertisers who make up the bulk of Facebook's client base, for instance.
Also: The Facebook mobile app ad network was halted in testing. The Instagram unit halted plans to introduce advertising. And brands large and small have complained that the new news feed algorithm (which some call "Edgerank") is discriminating against their posts.
But our sources say Q4 was a bumper period for Facebook, regardless. Here's a selection of their commentary:
- "Good. They will surpass."
- One client simply said, "up."
- Another, more cautious, said, "FB revenue increasing slowly."
- "Really good ... I think they're going to crush it ... there's momentum on top-spending brands."
- One advertiser said the news feed/Edgerank change increased spending, because advertisers realized that the only way to increase the reach of their posts to all their fans was to buy promoted posts or otherwise advertise on the platform.
The caveat here is obvious: This is a non-representative sampling of only Facebook's larger advertisers, and may therefore be skewed.
Disclosure: The author owns Facebook stock.
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