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Facebook (FB) Shareholders Should “Like” Mobile Ad Growth

 November 14, 2012 01:10 PM

(By Rich Bieglmeier) Advertising dollars, specifically for online, mobile, and search should continue to be a source of rising revenues for the likes of Google (GOOG), AOL (AOL), Yahoo (YHOO), Pandora Media, Inc. (P), and Facebook (FB).

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Despite worries that the economy is tapping the brakes, Omnicom Group (OMC) CEO, John Wren says he is "increasingly positive" about advertising spends for 2013, especially in the back half of the year. However, he hedged a little adding, "It's too early to make a clear prediction."

Additionally, PricewaterhouseCoopers' IAB Internet Advertising Revenue Report shows "Revenues for the first six months of 2012 increased 14% over the first six months of 2011."

The biggest winner could be mobile as the IAB report showed "Mobile advertising in the United States totaled $1.2 billion during HY 2012, up from $636 million in the comparable period 2011. " As more and more people go wireless with tablets and smartphones, iStock would expect this trend to continue.

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According to Alexa.com, Google, Facebook, Yahoo, Amazon (AMZN) and eBay (EBAY) are the five most popular, publicly-traded companies visited by smartphone users. iStock believes FB shareholders could prove to be the biggest beneficiaries in this group as management has invested millions of dollars in developing an integrated mobile ad experience.

Mark Zuckerburg told 3rd quarter conference call attendees 14% of Facebooks's revenue – more than $150 million - came from mobile ads. That's up more than 300% from $40 million to $50 million in the second quarter, and light-years ahead of next to nothing at the start of the year.

Doing a little math and some guestimating, if mobile ad spending maintains its first-half of 2012 pace, plus some marginal growth, we can see $2.6 billion as the year's total. eMarketer projects $2.61 billion.

Let's put FB's fourth quarter mobile ad revenue at $177 million using analysts' consensus estimate of $1.49B. We get there by taking last quarter's 85% of sales coming from advertising - $1.266 billion – and multiplying it by Zuckerburg's 14% - $177 million. Starting at zero, by the end of 2012, Facebook's mobile ad revenue could total $377 million, which equals roughly $1 out of $7 spent on mobile ads.

eMarketer forecasts 2013 mobile ad revenue of $4.4 billion and $6.6 billion in 2014. If our $1 out of $7 number holds, Facebook's mobile ad revenue could add up to $629 million in 2013 and $944 million in 2014.  Admittedly, our numbers are higher than eMarketer's $387 million and $629 million for 2013 and 2014, respectively.

Whoever is right will depend on key metrics like click-through rates and cost per conversion. The more effectively Facebook (FB) can manage both, the bigger slice of the rapidly growing mobile ad pie they'll enjoy.



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