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Facebook Could Outperform YouTube in Video Advertising

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Jan. 26 2016, Updated 12:05 p.m. ET

Facebook versus YouTube

So far, we discussed Facebook’ performance in 3Q15 and analysts’ estimates for 4Q15. We discussed how its revenue driver can have a positive impact on its financials. It will announce its earnings on January 27, 2016. In this part, we’ll continue our discussion on video advertising and the company’s effort to bring more advertisers on board.

Facebook reported that its daily video views rose to 8 billion in 3Q15. That’s almost double what it was in the prior six months. In early 2015, Facebook announced that its video viewers reached 1 billion per day compared to Google’s (GOOG) YouTube. YouTube reached the same figure in October 2009. YouTube took four years to hit 4 billion views.

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However, YouTube’s web content is different from Facebook’s “Activity Feed.” Facebook lists content like text, pictures, videos, and links together. In fact, Facebook added a new feature called “Autoplay.” It starts playing the video once a user scrolls through the page. So, it’s likely that users will be more attracted to watch videos. This will increase the viewer count.

However, the time spent per video on Facebook is relatively low compared to YouTube. This is a better indicator for advertisers to recognize users’ intent to see the video. Also, Facebook set a three-second time limit to register a video under the “Views” count.

New business model

Mark Zuckerberg, Facebook’s CEO, expressed his concerns about attracting quality videos. To overcome the situation, Facebook recently came up with a new business model for premium content. It will pay part of the revenue to the content owner to improve the video quality.

The iShares Russell 1000 Growth (IWF) is a portfolio of 645 stocks. eBay (EBAY), Amazon (AMZN), Facebook (FB), and Alphabet (GOOG) account for 0.32%, 2.2%, 2.1%, and 2.0% of IWF, respectively.

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