Facebook aims to improve monetization
The redesign of the news feed would allow for targeted content and should make advertisers more willing to pay for relevant ads.
However, the company will need to tread carefully to balance user experience against commercializing the platform.
Investors are expecting Facebook to better monetize its vast user base, and the company has been aggressively making efforts to achieve this goal for the past couple of quarters.
Why are Facebook feeds important?
In order to better monetize its mobile platform, Facebook has transitioned from regular banner advertisements to feed-based ads due to the lack of screen space on mobile. This implies that in the long term, advertisements will become a natural part of content sharing on Facebook. If the company achieves this successfully, it will solve the delicate problem of monetizing the platform without disturbing user experience.
The number of ads within Facebook's mobile feeds has increased significantly and their effectiveness is driving ad prices up.
The company launched a huge mobile advertising campaign for Wal-Mart (WMT) during the holiday season. About 50 million ads on deals and discounts were rolled out to millions of Facebook users. Although the results were mixed, this marks an important step towards strengthening the monetization of Facebook's mobile platform. While there was a high level of user engagement, they also complained about unwanted ads.
The company is also working on promoting 'custom audience,' which basically combines Facebook's user data and an advertiser's customer data to increase the effectiveness of targeted ads. The company is also focusing on app install ads. These ads were launched in October 2012 and are being used by one-fifth of the top 100 grossing iOS apps to accelerate growth. Mobile device users spend a lot of time using apps and Facebook is looking to monetize this opportunity.
Atlas purchase is part of the same strategy -- more ad dollars!
More than 70% of Facebook's value depends on the advertising business and less than 5% of Microsoft's (MSFT) value comes from online ads. This metric could explain why Microsoft sold Atlas to Facebook recently. Atlas is a digital advertising service that tracks online purchases and provides insights about the usefulness of online ads using its proprietary data. Facebook could use Atlas as a tool to improve the effectiveness of its ads as well as better market its platform to advertisers. (Microsoft owns and publishes Top Stocks, an MSN Money site.)
Our price estimate for Facebook stands at $25, implying a discount of about 15% to the market price.
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