As YouTube Marks Its 10th Year, Facebook Emerges As Video Threat

24/04/2015 10:31 AM IST | Updated 15/07/2016 8:25 AM IST
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It's 10 years to the day since the first clip 'Me at the Zoo' was uploaded on YouTube, and the service - now owned by Google Inc - has dominated online video-sharing ever since.

But for how long?

Facebook Inc said on Wednesday that its users were watching 4 billion videos a day, compared with 3 billion in January and just 1 billion in September.

That was enough for at least nine brokerages to raise their price targets on Facebook's stock on Thursday despite the company's slowest quarterly revenue growth in two years.

Almost all analysts saw video advertising as one of Facebook's most promising areas for revenue growth.

"The Internet is experiencing something of an inflection point in terms of demand for video and mobile advertising, and FB may well be the single biggest beneficiary of this inflection," RBC Capital Markets analyst Mark Mahaney said.

Mahaney raised his price target on Facebook's stock by $17, to $105 from $88.

Facebook shares were down about 1 percent at $83.92 in early trading on Thursday.

Google does not disclose viewership or revenue numbers for YouTube, although the company said in January 2012 that it had reached 4 billion daily views.

That was almost seven years after YouTube's co-founder, Jawed Karim, posted the video of his visit to the zoo on the fledgling site.

Brokerage Cowen & Co estimates that YouTube's daily views will reach 7.9 billion by the end of the year, generating $5.9 billion in revenue. The brokerage expects Facebook's revenue from video advertising to reach about $1 billion this year.

Facebook launched auto-play video ads in March 2014.

"FB's video consumption growth remains explosive as it evolves into a premier digital/mobile video platform," Cowen analysts wrote in a client note, raising their target price on Facebook's stock to $94 from $91.

Mobile ads accounted for 73 percent of Facebook's total ad revenue in the first quarter, up from 59 percent a year earlier.

"Looking ahead, we believe video will play a significant role in bringing more marketers to mobile," Facebook's chief operating officer, Sheryl Sandberg, said on a call with analysts on Wednesday.

"More than 75 percent of global video views on Facebook occur on mobile, and we believe mobile video will become more important to marketers over time," she said.

Facebook's net income attributable to stockholders fell 20 percent to $509 million in the three months ended March 31, while revenue rose 42 percent to $3.54 billion.

Adjusted earnings were better than the market expected but revenue missed.

Revenue from advertising rose 46 percent to $3.32 billion.

"... While ad revenue growth has been robust, the company appears to only be in the early innings of fully monetizing video advertisements," Barclays Capital analysts said.

Analysts also saw plenty of opportunity to build a revenue stream from messaging service WhatsApp, photo-sharing service Instagram and virtual reality headset maker Oculus Rift. Facebook is investing heavily in all these products.

"Core Facebook continues to power results, and the well known catalysts remain on the horizon and a source of potential upside with Instagram ramping in 2016, WhatsApp in 2017, and Oculus in 2018," Piper Jaffray analysts wrote.

Up to Wednesday's close, Facebook's shares had risen by a third in the past year.

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