Since Mark Zuckerberg launched Facebook in February 2004, it has accumulated over 900 million active users. In fact, those who are between the ages of 18-34 are generally assumed to have a Facebook account. With the high amount of popularity the company has gained over the years, in May they decided to allow public stock trade.
The initial public offering (IPO) opened at $38 per share. Being the well known company that Facebook is, investors figured numbers would sore on opening day. This was not the case however, as shares fluctuated between $38 and $45 throughout the day; going forward, stock plummeted to a low $25.52.
Many stockholders were outraged by the turn of events, and even started lawsuits, protesting Facebook had analysts project the financial forecasts prior to the IPO. The stockholders insist Facebook told a small circle of clients what the outcome was. Of course Facebook and the banks handling the IPO denied this as the case.
Now two months into the IPO, stocks have yet to gain the momentum that was hoped for and as of July 19th, share value closed at $29. After eight years of being in business, and many unappreciated user interface updates, it is no wonder why the price would be down so low.
Facebook Ad Revenue Increases
Despite the drop in stock, Facebook revenue has risen by use of intrusive advertising. According to TBG’s second quarter Global Facebook Advertising Report, the Cost per Thousand Impression (CPM) has increased 58% over the last year. The biggest culprit of this increase was Germany (31%), followed by the United States (25%), then Canada (31%) and the United Kingdom (7%).
According to the report, “the increases are definitely great news for Facebook as they signify that their inventory continues to work better for them.” The report attributed the increase to additional usage of Sponsored Stories, and the introduction of mobile ads.
Click Through Rates (CTR) have also seen an increase this year, rising 11% since 2011’s third quarter. The CTR’s indicate how interesting the ads are to users. It is evident the advertising team at Facebook saw their mistakes last year (with a decrease of 6% CTR), and figured out how to improve upon their advertising scheme throughout the following quarters.
Also noted was a 7% increase in Social Impressions (ex. John Smith likes…). “Social context continues to make a difference to ad engagement and mobile targeting is positively affecting Click Through Rates”, says TBG.
Newton’s Third Law of Motion states “For every action there is an equal and opposite reaction.” In this case, Facebook CPM and CTR increased (which is good) but their Cost Per Click (CPC) also increased (this is bad). “Facebook uses CPC and CTR metrics to calculate CPM (what they earn per ad served). As targeting increases, so does the CPM that Facebook charges. Advertisers therefore have to increase their bid prices to ensure ads are deliverable.” As the statistic shows, Facebook gained some leverage with the higher CPC and CTR, but also lost some pull with the increased CPM. Luckily for them, the CPC and CTR increase was higher than the 9% increase of the CPM.
Facebook Search Ups the Ante
Already ahead of the game with its increased ad revenue, Facebook went a step further by formulating a new way to promote ads – through search. Sponsored Results will populate, and allow business to direct advertisement traffic straight from the search box. For instance, typing in a partial product name, such as CityVille, will result in ads leading to both the original Zynga CityVille, as well as knockoffs of the game.
According to TechCrunch, “Sponsored Results could be big for Facebook’s bottom line, pulling in ad dollars from direct advertisers with something to sell.” Facebook released to the site that the ads will be sold on a cost per click (CPC) basis and will result from searching any descriptive page, app, place, and possibly event. Simple words such as “games”, “beaches”, or “cameras” will not produce Sponsored Results, says TechCrunch. Testing for this new feature began on Thursday evening. The only noticeable change will be the tiny words “Sponsor” on an applicable search results page.
