Facebook ’s ad revenue per user has been growing continuously, demonstrating the value that advertisers see in working with the firm. The application of AI technology to Facebook ’s various offerings, along with the launch of VR products, will increase user engagement, driving further growth in advertising revenue. Facebook provides the most massive audience and the most valuable data for social network online advertising.
The firm’s Facebook app, along with Instagram, Messenger, and WhatsApp, is among the world’s most widely used apps on both Android and iPhone smartphones. Facebook is taking steps to further monetize its various Apps, such as providing interactive video ads. The firm is also applying artificial intelligence and virtual and augmented reality technologies to various products, which may increase Facebook user engagement even further, helping to further generate attractive revenue growth from advertisers in the future.
The company’s main offerings all have strong network effects. These network effects serve to both create barriers to success for new social - network upstarts as well as barriers to exit for existing users who might leave behind friends, contacts, pictures, memories, and more by departing to alternative platforms. Facebook has emerged and established itself as the clear-cut social media leader.
Facebook has also slowly become an entertainment hub, which helps increase engagement and user time spent on Facebook. The users are posting more videos and providing a live video feed from where they are at a certain point in time. Additional apps created by developers on the Facebook platform also help maintain users within the Facebook ecosystem. Users are on Facebook and Instagram a combined 65 minutes per day (compared with a daily 64 - minute average during 2016 - 2018 ) posting videos and photos.
Unlike any other online platform globally, Facebook has accumulated data about everyone with Facebook and/or an Instagram account. Without the need for cookies enabled on desktop or mobile browsers, the firm knows its users ’ browsing history on many non-Facebook sites or apps. With access to such data and to billions of photos and videos uploaded by its users, Facebook continues to enhance the social network by offering even more relevant content. This positive feedback loop further increases the value of its data asset, which only Facebook and its advertising partners can monetize. Specifically, Facebook monetizes user information only by using it to increase the effectiveness of its advertisers. Advertisers ’ willingness to use Facebook is demonstrated by the 26 % average annual growth of Facebook ’s average ad revenue per user (ARPU), during the past five years.
Facebook ’s large and growing user base and the rich data that it generates help advertisers post more effective target ads, in terms of brand awareness, resulting in a high return on investment (ROI). Most Facebook users are now accessing Facebook and its apps via mobile devices. Thus, the main driver behind the growth of online advertising has been the mobile advertising market and video advertisers.
The firm ’s management has demonstrated its focus on long-term returns on investments. With a large amount of cash, along with little debt, Facebook is well-positioned to make additional investments in acquisitions or more research and development. The firm will continue to make decisions regarding capital allocation that are beneficial for its social network users and its shareholders.