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Video Drives Facebook’s Advertising Revenue in 2Q15

Matilda James

Facebook Posts Robust 2Q15 Earnings but Stumbles over Expenses

(Continued from Prior Part)

Video ads, a crucial driver for digital media companies

During the 2Q15 earnings conference call, Sheryl Sandberg, Facebook’s (FB) chief operating officer, highlighted the increase in demand for Facebook’s video advertising products. Sandberg credited the company’s video advertising products for its strong revenue growth.

Sandberg said, “People love the format of video. It’s long been used to reach people in a compelling way, and we can do targeting in a way that’s really unique.”

Video ads have the potential to drive great results for digital media companies. In July 2015, Facebook introduced a new section on its website called Suggested Videos to challenge Google’s (GOOG) and YouTube’s monopoly in the digital video market. The videos are interspersed with autoplay advertisements. The idea is to help users discover videos similar to the ones they already like.

As you can see in the above graph, Google remains the undisputed leader in the global online advertising market. According to eMarketer, YouTube generated ~$1.22 billion in revenues from video ads in 2014, accounting for more than 20% of the overall video advertising market in the United States.

Other players that are picking up the pace in this market are Microsoft (MSFT) and Yahoo! (YHOO). Microsoft recently announced an advertising deal with AOL. For more on this topic, read Microsoft Hands Over Display Advertising to AOL.

For diversified exposure to Facebook, you can invest in the Technology Select Sector SPDR Fund (XLK). XLK invests 4% of its holdings in Facebook.

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