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Facebook's (FB) Aggressive Video Push to Aid Q4 Earnings

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Facebook’s (FB - Free Report) video initiatives are expected to hog the limelight when the company reports fourth-quarter 2018 results on Jan 30.

The company’s huge user base of more than 2.6 billion (including Family of services — Instagram WhatsApp and Messenger) presents a larger canvas for advertisers and makes the platform highly attractive.

Facebook’s growing video initiatives are driving video-based advertisements on the platform. Advertisers prefer video advertisements as these appear to be the most lucrative medium to attract the audience.

Click here to know how the company’s overall fourth-quarter performance is likely to be.

Video Initiatives to Drive Growth

Facebook intends to cash in on the ever-increasing trend of video viewing on social media platforms. Video ads are expected to bring in additional ad dollars (98.6% of total revenues in third-quarter 2018), apart from messaging and Stories ad revenues, thereby diversifying revenues from News Feed ads.

Video ad products like In-Stream Reserve program and ThruPlay are key growth drivers. With In-Stream Reserve, companies can choose to advertise on the most popular videos on Facebook. Meanwhile, ThruPlay charges advertisers only for ads that are watched till the end, or for at least 15 seconds.
 

Facebook, Inc. Revenue (TTM)

 

Facebook, Inc. Revenue (TTM) | Facebook, Inc. Quote

 

Notably, in the last reported quarter, Facebook introduced “a way for advertisers to buy video placements from a selection of the most engaging publishers, choose specific content categories they want their ads to play alongside and pay only for ads that are watched till the end.”

The company also launched artificial intelligence (AI) powered Portal, which is a voice-controlled device with features like smart camera, speaker, digital assistant and most importantly, video calling.

Watch: Key Catalyst

Facebook Watch is a key catalyst in attracting advertisers. Watch is a special section on the social media giant’s platform that focuses on video content, including entertainment, news and sports, among others. During the global release of Watch in August, the company introduced ad breaks in videos.

The company stated that since the international launch, more than 400 million people on a monthly basis and 75 million people on a daily basis have spent at least one minute on Watch. On average, these 75 million daily visitors spend more than 20 minutes on Watch.

Moreover, in December, the company released Watch on desktop and Facebook Lite.

Expanding Content to Drive Watch User Base

Notably, the company has plans to spend up to $2 billion to create and produce content on Facebook Watch. Notably, Elizabeth Olsen starrer Sorry for Your Loss received strong reviews. Season 1 of Catherine Zeta-Jones starrer Queen America was also released in the fourth quarter of 2018.

Facebook also acquired rights to all episodes of Buffy The Vampire Slayer, Angel, and Firefly from 21st Century Fox . Moreover, Facebook has ordered a 10-episode series named Limetown, starring Jessica Biel. The company has also signed deals with 21st Century Fox and CNN to launch news shows.

Further, the company is expanding its reach into live sports by inking deals with the likes of Union of European Football Associations (UEFA), Major League Baseball (MLB) and La Liga (for football matches in Indian subcontinent). This initiative is expected to keep users glued to the platform as companies like Twitter (TWTR - Free Report) and Amazon (AMZN - Free Report) are also betting big on live sports.

Co-Viewing Feature to Attract Users
 
Facebook believes the co-viewing feature “Watch Party” that enables group members to watch videos together and interact among themselves will enhance social viewing and user interactions, thereby increasing the time spent on the platform.

Additionally, the social media giant is allowing users to interact with their favorite video creators to further strengthen the social connect. This will eventually drive viewership.

Facebook also stated that “there have been more than 12 million Watch Parties in Groups alone, and Watch Parties garner eight times more comments than regular videos in Groups.” The growing adoption of "Watch Party" is likely to expand user base, thereby driving advertising revenues.

The Zacks Consensus Estimate for fourth-quarter advertising revenues is $16.34 billion.

Facebook carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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