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Online Advertising Getting a 1-2 Punch from Facebook, Twitter

20 September 2013 in Trading Ideas

Admit it – you were one of those chuckling at Facebook last year.

Sure, you remember: the hugely anticipated IPO that gave new meaning to the phrase “struggling out of the gate.” Only it didn’t stop there. Just four months into its public-company existence, Facebook shares were sitting at about $18 – less than half their offering price.

And it didn’t appear to be just a reflection of losing pre-IPO hype momentum. All of a sudden, it seemed, many investors were asking questions about Facebook like it was – heaven forbid – just another tech company. Is growth starting to slow? How is the company going to make money off mobile?

Well, as Facebook CEO Mark Zuckerberg might currently wonder aloud to the investing world: How do you like me now?

Just 18 months after what may have been the biggest IPO boondoggle ever, Facebook’s stock is poised to break through recently set all-time highs after jumping more than 73% in the past two months alone.

And what set everything off? Investors have essentially been smiling since the company’s surprisingly upbeat earnings report, which were boosted by a surge in mobile-advertising sales. As Steven Russolillo put it in WSJ.com’s Moneybeat blog, skeptical investors and financial analysts were essentially forced to rethink their Facebook pessimism.1

Online Ads MotifThe stock’s big run also has contributed to an increasingly positive view of late in other companies that rely heavily on online advertising revenue. The Onward Online Ads motif, where Facebook shares have a 17% weighting, has risen 7.2% in the past month. For the year, the motif is up 48.8%.

The S&P 500 is up 4.4% during the past month, and has increased 19.6% in 2013.

But the metaphorical extra point to Facebook’s touchdown dance in the game of online ad revenue may have been the announcement late last week that Twitter has submitted its paperwork for an IPO to be priced at some date in the future.

For all the handwringing about how poorly Facebook (or Google, for that matter) had been doing at transitioning online ad revenue to the mobile platform, here now comes Twitter, which has been another story entirely.

As Bloomberg News reported, more than half of Twitter’s ad revenue comes from ads seen on smartphones and tablets. That’s better than both Facebook (41%) and Google (slightly less than 25%).2

While Twitter has just a sliver of what is projected to be a $16.7 billion mobile-ad market this year, the company’s earlier focus on mobile could assuage investor uncertainty headed into the IPO.

Plus, there are always nifty projections like the one from eMarketer that Twitter’s total ad revenue will jump to $1.33 billion in 2015 from the $583 million expected this year.3

A lot can certainly happen between now and 2015, but it may take something drastic to push investors off their current online ad revenue bullishness.

1Steven Russolillo, “Facebook Shares Hit All-Time High,” WSJ.com, Sept. 11, 2013.

2Brian Womack, “Twitter Outshines Facebook With Earlier Focus On Mobile,” Bloomberg News, Sept. 15, 2013, http://www.bloomberg.com/news/2013-09-16/twitter-outshines-facebook-with-earlier-focus-on-mobile.html.

3“Twitter IPO: Breaking Down the Numbers,” WSJ.com video, Sept. 13, 2013, (accessed Sept. 17, 2013).

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