Facebook (FB) is a an unavoidable first stop for advertisers, especially as the company expands its ad reach to its many platforms.
Shares of the social media giant opened at their highest level in about nine months on Thursday morning. A large degree of this share reaction is a result of an earnings release on Wednesday evening that revealed the platform is essential for advertisers, making this revenue stream ironclad.
"We had a strong start to the year. Mobile ad revenue grew 30% year-over-year to $13.9 billion, making up approximately 93% of our total ad revenue," COO Sheryl Sandberg explained. "We had solid growth across all regions and our revenue base continues to broaden as more businesses advertise with us. In Q1, our top 100 advertisers represented less than 20% of our total ad revenue, which means our advertiser base is more diverse compared to the same period last year."
The more diverse advertiser base indicates the company is not only adding revenue from its top customers, but beckoning more companies to begin advertising across their broadening ecosystem of apps.
"Facebook continues to prove itself as an indispensable part of the marketing mix. It provides a breadth of reach and depth of targeting that's hard to replicate on other platforms," Aaron Goldman, chief marketing officer at 4C Insights told Real Money. "With Instagram continuing to orient more around commerce, the app is poised to contribute even bigger growth. Meanwhile, Messenger and WhatsApp are waiting in the wings as Stories adoption increases and the format becomes a standard advertising opportunity across the Facebook family of apps."
He added that he suspects video advertising will continue to increase in coming quarters as stories, Instagram, and Facebook Watch pick up steam.
The new stories rollout is a solid bellwether for this growth, as the company added 1 million advertisers to the feature in the first quarter of 2019 alone. The strong demand should add to the company's pricing power in advertising moving forward.
"We can increase demand for Stories as we attract more advertisers and bring more effective direct response units to Stories," CFO Dave Wehner explained. "Over time, that will play through to increased prices."
Stories currently command a lower price point from advertisers, shrinking margins. However, Wehner's comments indicate this could shift as the endeavor matures.
The positive path ahead for ad revenue increases was picked up on by analysts, who noted that upward revisions could still be on the table despite an over 40% run for the stock to kick off the year.
"We think core Facebook and Instagram have long-runways ahead," JMP Securities analyst Ronald Josey said. "While there may be revenue headwinds in the second half of 2019 around targeting issues (not to mention Facebook's potential $3-5 billion fine regarding its FTC inquiry), we believe greater Stories adoption among users and advertisers, commerce opportunities with Checkout on Instagram and Collaborative Ads, and Video, among others, can lead to continued growth going forward."
The collaborative ads, a new feature for Facebook, also indicate the company's ability to deliver value to advertisers beyond its mouthwatering 2.7 billion person-strong user base.
"We believe it is still early in the development of Facebook's ad platform, including an ongoing improvement in ad targetability and measurement as well as a shift toward ads with higher quality formats, which we believe will become increasingly valuable to advertisers," J.P. Morgan analyst Doug Anmuth surmised.
To be sure, questions surround the potential cannibalization of ads from Facebook's flagship newsfeed if stories, Instagram, Messenger, and Whatsapp continue to accelerate. Additionally, there is a concern that Amazon (AMZN) , Alphabet (GOOGL) , and emerging social media plays like Pinterest (PINS) could gain ground in courting advertisers.
For now, the revenue results suggest Facebook is sticky enough to satiate investors and analysts.
The positivity surrounding the advertising angle has led to a stunning 24 price target raises for the stock among Wall Street analysts, according to FactSet. The consensus price target now stands at $217 per share, which would match the all-time high marked by the stock in July 2018.