Recently, video ads were placed on the social networking giant Facebook (FB) by Unilever PLC (UN) promoting its Dove soap product. These ads are unique as they are the first video ads on Facebook posted by any consumer goods company.
Thiswill be acid test for the success of such video ads, because ads for soap are usually not as entertaining as movie trailers and television teasers.
These ads would cost near about $1.0 million per day. Recently, NBC purchased an ad from Facebook to promote three of its shows.
This is not the first time that Facebook is experimenting with posting ads for advertisers driven by branding objective. Earlier in December, 2013 Facebook ran one of the ads called “Premium Video Ad” in which it had shown the trailor for the movie “Divergent.”
However, since then Facebook has become very restrictive regarding the content of the ads and it became pretty selective in choosing the companies whose ads it will showcase on its platform.
Premium Video Ads are designed for advertisers who want to reach a large audience with high-quality sight, sound and motion. Each 15-second video ad will start playing without sound as it appears on screen and stop if people scroll past. If people tap the video, it will expand into a full-screen view and sound will start.
As Facebook’s ad business matures, top-line growth is expected to suffer. In such a scenario, video ads, along with other new products like the recently announced mobile-advertising network will help Facebook to sustain its revenue growth momentum.
Of late, Facebook has been on an acquisition spree and per Bloomberg, to-date the decade-old company has spent approximately $21.0 billion on 40 acquisitions. This has infuriated the investors to a great extent as these acquisitions are weighing down on the cash balance of the company.
In order to calm investors’ nerves, we believe Facebook needs to maintain its ad revenue growth momentum, over the next couple of years. However, this may become difficult as the company continues to face intensifying competition from Google (GOOGL), Microsoft (MSFT) and Twitter (TWTR) in the ad market.
Nevertheless, Facebook’s growing mobile user base (more than 1 billion), Instagram’s increasing popularity (200 million users) and the new initiatives such as Internet.org will continue to boost Facebook’s share price in the near term.
Currently, Facebook sports a Zacks Rank #2 (Buy).
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