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Why Is Facebook’s Advertising Revenue Declining?

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Facebook’s ad revenues

Facebook (FB) posted advertising revenues of $14.9 billion in the first quarter of 2019, an increase of 26% YoY. However, the YoY growth rate of advertising revenue has been declining, as the company has been heavily investing in Stories, which have a lower ad price than Facebook and Instagram feed ads. Stories is a Snapchat (SNAP)-inspired sharing option of disappearing photos and videos. Facebook’s advertising revenues contributed ~98.9% to the total revenues in the first quarter.

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Facebook and rivals Twitter (TWTR) and Alphabet’s (GOOGL) Google also look to advertising sales for the majority of their revenues. In Q1 2019, Twitter’s advertising revenue was $679 million in Q1 2019, which grew 18% YoY and 20% YoY, excluding currency. Alphabet is slated to report its Q1 results on April 29. Last quarter, its advertising revenues grew 20% YoY.

Emphasis on mobile and digital advertising

Facebook has been expanding into mobile advertising, which is now 93% of the total advertising revenues, up from approximately 91% of advertising revenue in Q1 2018.

Facebook, along with Google and Amazon (AMZN), are competing fiercely in the digital advertising business. However, Amazon is increasingly growing in the digital advertising industry and has become the third-largest digital advertiser in the US, as per eMarketer. Amazon’s growth in the US digital ad market has reduced the market share of Google and Facebook in digital ad spending, which is expected to reach $129.34 billion in 2019. According to the report, Twitter has also benefited from video advertising, while increased spending on over-the-top platforms like Hulu and Roku (ROKU) might further boost digital video ad spending in 2019.

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