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Examining the Strength of Facebook’s Ad Business ahead of 3Q17

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Facebook’s ad business

Facebook’s (FB) advertising business is in focus as the company prepares to report its 3Q17 results. The advertising business is crucial to Facebook, and the escalating competition in the online advertising industry sharpens this focus.

Despite stiff competition in the online advertising industry, Facebook’s advertising business seems to be supported by strong pillars, and its 2Q17 results provided an important insight. 

In 2Q17, Facebook demonstrated that as much as there is tough competition for Internet advertising funds, it is still capable of commanding higher rates for its ads. Facebook said its advertising rates increased by an average of 24% year-over-year in 2Q17.

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99% of Facebook sales come from ads

Facebook’s rising advertising prices are not turning away marketers. According to its last update, Facebook had more than 5.0 million active advertisers in April 2017. We can see from the chart above how the company’s active advertiser base has increased steadily.

Facebook drew 99% of its 2Q17 revenues from advertising sales, which was the highest level compared to the advertising component of revenues generated by its main challengers—Alphabet (GOOGL), Twitter (TWTR), and Snap (SNAP).

Facebook faces off with nontraditional rivals

As for competition for online advertising budgets, Facebook is competing with Google and Twitter—its usual rivals—as well as wireless carriers like Verizon (VZ). These carriers are looking unlock new growth opportunities outside their traditional industries. Verizon acquired AOL and Yahoo to boost its play in the media and advertising space.

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