Facebook Ads: Advertising Revenue Before and After IPO

Facebook Ads
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Advertising revenue before and after IPO
Before IPO
From the U.S. Security and Exchange Commission, Facebook revealed its revenues and profits in 2011, just before its IPO. Facebook reported $3.71 billion in revenue which was an increase from $1.97 billion in 2010. This fell short of eMarketer`s projection of$4.72 billion. Before the IPO, this increase resulted from 69% increase of advertising revenue from 42% from the delivered number of ads and 18% of the average price (Delo, 2012). Facebook advertising revenue made $3.4 billion of the entire revenue earned that year, advertising is 83% of Facebook`s total revenue (Trefis Team, 2014).
After IPO
Facebook then launched its IPO in 2012, and the concern according to Forbes magazine was that the deal pricing would not justify Facebook`s business model. This was true as Facebook shares dropped from IPO prices of $38 to $17.55 in the same year. This happened because investors were uncertain about the ability of Facebook to monetize its mobile base which was steadily growing. It was expected that revenue from Facebook would decline per 1000 page views due to having international users and the shift to mobile users. Facebook`s business model relied on ads as the social network advertising revenue platform. It created a sustainable mobile monetization model to crack mobile advertising puzzle as this would bounce back the stocks (Trefis Team, 2014).
Facebook rolled out feed based ads for mobile devices. The advertising revenue rose to $4 billion in 2012, $6.98 billion in 2013, and $11.49 billion in 2014, and over $17 billion in 2015. Facebook had advertisements that were a natural part of Facebook feeds and it enticed advertisers since it was very attractive and had an impressive click through rates. The rates of feed based ads averaged at 3% and this made Facebook advertising revenue accelerate from 2013 as mobile advertising revenue grew (Trefis Team, 2014).
Effect of GM pull on Facebook`s IPO
General motors’ stopped buying ads from Facebook early May, 2012 through pulling $10 million from advertising on Facebook`s site, citing the cite as ineffective, and this happened before the initial Facebook public offering. The decision to pull out was because the ads had little impact on consumers. In addition, General Motors claimed it moved its advertising spending around different outlets as a normal course of their business. This decision to pull out showed a vote of no confidence to other interested investors (Kunz, 2012). As Facebook was launching its IPO, it became a major disappointment as shares were sharply falling from the offering price. Facebook had raised about $16 million, but they had lost $50 million of stock value that August 2012. GM was not the only driver that led to the drop on Facebook`s IPO. The banks increased the originally share prices three days before the market debut and this also led to falling of Facebook`s shares (Trefis Team, 2014).
Facebooks conversion rates
Clicks per impression (CTR click through rate) shows the number of clicks per a single advertisement impression. This helps identify the advert quality, and the marketing quality of the ad. If it has a higher value, then the ad is more attractive and this is showed through users clicking it often.
Cost per click (CPC) denotes the cost of a single click per ad during a campaign. Due to the auction pricing for ad space on Facebook, each click`s cost differs in time and it is calculated as average users cost per click. A low CPC signifies an effective ad and therefore shows the cost of increasing traffic on a brand`s page and it is showed directly via Facebook ads reporting tools. High traffic signifies higher awareness of a brand and increases the chance to sell the brand services and products.
Return of investment (ROI) shows the revenue collected through Facebook ads in comparison to amount spent on the ad. If a single ad has a higher return of investment then it performs well (Vejacka, 2012).
Facebook customer acquisition cost
Facebook ads are auctioned where advertisers compete amongst each other via biding the price of click on their ad, or the price of displaying their ads to a targeted group. The advertisers suggest biding ranges and then they set a maximum bid, although Facebook would charge the amount it takes an advert to win an auction. Advertisers control their daily budget and if the daily budget is spent the ads stop showing until the next day of the current campaign (Vejacka, 2012).
Audience targeting refinement tool
This helps an advertiser create an ad from the business Facebook page. Then later target the ad to people in specific locations, demographics, and people of a certain age, custom audience, gender, connection, behaviors, and interests. The ad can target people on what they actually do on Facebook. There are the targeting options to choose from to help advertisers reach the people they want (Facebook, 2016).
Advertising metric tools
Conversation rate: this ascertains the number of user comments and replies per post and users’ engagement via typing and adding into the ongoing discussion. Amplification rate: it shows the number of shares per a specific Facebook post. Users amplify the brand`s contribution so that people who do not know about the brand find out. Applause rate: it identifies the number of likes per a single Facebook post. Which products and services the followers or customers appreciate and like more, and which ones are not liked so that the company can get rid of the less valued product (Kaushik, 2016).