Market Insight

Facebook’s strong fourth quarter pushes annual earnings to $17.9bn in 2015

January 28, 2016  | Subscribers Only

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Facebook reported total earnings of $17.9bn and advertising revenue of $17.1bn in 2015, up 43.8% and 48.7% respectively from 2014, in line with IHS forecasts. Mobile advertising accounted for 77.7% of advertising revenue at $13.2bn. The social media company recorded a particularly strong fourth quarter generating $5,637m in advertising revenue, up 57.0% year-on-year.

Facebook Monthly Active Users (MAUs) increased to 1,591m globally, of which 1,442m were mobile and 823m were mobile-only. Desktop-only users accounted for just 149m in Q4 2015, down -27.0%, year-on-year.

The US & Canada contributed 48.9% of Facebook’s advertising revenue in 2015 at $8,349m, compared to 46.0% and $5,285m in 2014 (a year-on-year growth of 58.0%). Europe was the second largest region at 27.1% and $4,634m and APAC advertising revenue grew 52.5% to $2,655m. The Rest of World recorded $1,802m in 2015; only 10.6% of Facebook advertising revenue, despite comprising 35.2% of all MAUs.

 

Our analysis

Five factors are driving Facebook’s strong revenue growth:

  1. Advertising seasonality and good comparatives: The fourth quarter tends to perform better than all other quarters due to advertising seasonality. Christmas is the highest spending time of the year, particularly in Western economies and advertisers take advantage of this by increasing their ad spend in December. The boost in Q4 2015 was larger than expected even for Q4, due to good comparatives from the previous year. In 2014, many advertisers and marketers shifted their ad spend to the second quarter of the year to take advantage of the football World Cup and hence had less budget available for Q4 2014. This meant that the bump in Q4 2015 was further inflated when compared against a relatively weaker Q4 2014.
  2. Social media ad spend boost from the build-up to the US primaries: The US is the largest Facebook advertising market and quadrennial events in the US can skew Facebook’s total business dynamic. As the US primaries approach, many presidential candidates are focusing their campaign efforts on Facebook, spending more on social media advertising than ever before. This was reflected in the particularly strong growth in ad revenue in the US in Q4 2015 up 58.0% from the previous year, the fastest growth across all regions.
  3. Increase in ad load: Facebook confirmed that revenue growth came in part from an increase in the ad volume on the Facebook platform. An increase in ad volume can come from: 1) an increase in the number of users; 2) an increase in time spent on the platform; or 3) an increase in ad load. All three have grown since 2014, but the most noteworthy change was the increase in the ad load per user per session. Facebook users are seeing significantly more ads in their newsfeed than a year ago and principally more video ads, which are of higher value from a publisher perspective.
  4. Expansion of video content and video advertising: In 2015, Facebook focused its efforts on expanding its video content and increasing its video advertising capabilities. The company made deals with numerous content creators (National Geographic, New York Times, and HBO) to host video content on its platform. IHS expects further deals to be announced in 2016 with possibly a separate video player launched later in the year. IHS estimates that Facebook generated $1,299m in video advertising revenue in 2015, accounting for 7.6% of its total advertising revenue. IHS anticipates more video ads in 2016 as Facebook continues to work on attracting the largest brands to its platform. At the World Economic Forum in Davos, the CEO of WPP, Martin Sorrell stated that WPP spent $1.0bn on Facebook ads in 2015 and the largest advertising agency will continue to increase spend on the social media platform going forward. The bulk of this increase will be allocated to video ads and Facebook must be prepared to accommodate the increased demand for video to absorb these new budgets.
  5. Monetisation of Instagram: In mid-2015, Facebook began selling advertising on Instagram and IHS believes that this was a large contributor to the strong Q4 growth in Facebook ad revenue. At the end of 2015, Instagram recorded 400m monthly active users compared to Twitter’s 320m (as of Q3 2015). Although some of the ad spend dedicated to Instagram will cannibalize revenue that could have gone to the Facebook platform, the social media giant hopes Instagram will mostly deter ad spend that would have otherwise gone to its competitors with similar audiences to Instagram, in particular Snapchat and Twitter.

 

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