How Facebook’s Ad Strategy Shift Affects Its ARPU
ARPU in focus
The quality of the 1Q17 earnings results that Facebook (FB) is expected to report on May 3, 2017, should be tested in many ways. Investors are already keen to see the impact the newly listed Snap (SNAP) is having on Facebook’s advertising business, especially advertiser gains and retention.
Others have their spotlight focused on Facebook’s ARPU (average revenue per user) metric. Part of the reason ARPU will be in sharp focus for many Facebook investors is that the company warned last year that its revenue growth would slow starting in 2017.
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Facebook said that beginning in 2017, it wouldn’t try to grow its revenues by increasing the number of ads that it displays on users’ newsfeeds. Instead, it plans to grow revenues by attracting more subscribers to the platform and fostering deeper user engagement.
Facebook said its worldwide ARPU in 4Q16 rose more than $1.00 from 4Q15 to $4.80. North America is Facebook’s most lucrative region, with the company reporting US (SPY) and Canada ARPU of more than $19.80 in 4Q16, up from $13.70 in 4Q15. The chart above shows Facebook’s North America ARPU for the last four years.
Improving ARPU without increasing ad load
To grow its ARPU without cramming more ads onto its newsfeeds, Facebook must convince advertisers to spend more to pitch to its users. The company plans to deliver superior ROI (return on investment) for its advertisers, which can be achieved by growing the user base and encouraging its users to spend more time on the social site.
The 1Q17 earnings release should reveal Facebook is faring with these efforts, particularly in contrast to its rivals. Snap, Twitter (TWTR), and Alphabet’s (GOOGL) Google have also stepped up their campaigns for subscribers and advertisers.