Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

Facebook Inc (FB), LinkedIn Corp (LNKD): Is This Advertising News a Fundamental Game-Changer?

I’ve been saying it for months, Facebook Inc (NASDAQ:FB), with 1.2 billion users, has the potential to monetize itself on a level that no other social media company can accomplish. On Tuesday, its post-earnings rally continued with gains of 6%, as the company gave us yet another reason that it’s light-years ahead of competing companies.

Facebook Inc (NASDAQ:FB)

What’s the news?

The big news on Tuesday was that Facebook Inc (NASDAQ:FB) plans to sell 15-second TV-style ads on its site. These ads will be age and gender targeted, and Facebook Inc (NASDAQ:FB) will charge between $1 million and $2.5 million per day.

If we use simple math and assume Facebook Inc (NASDAQ:FB) sells just one ad per day, then we can multiply $2.5 million by 365 to equal over $900 million. However, as Facebook Inc (NASDAQ:FB) noted, these ads will be gender and age targeted, meaning that Facebook Inc (NASDAQ:FB) could run 4-6 ads per day, racking in another $4.5 billion in annual revenue with this one service alone.

Will it work?

Immediately, Facebook bears are going to say that this plan will never work and that advertisers will not pay for 15 second slots on the social media company’s site. However, I beg to differ. Facebook reported having 699 million daily active users at the end of June, which was up 35% year-over-year.

In contrast, last year’s Super Bowl had 108.41 million viewers, and advertisers paid $4 million for a 30 second commercial spot. Therefore, Facebook’s fee would be half the Super Bowl rate for half the ad time. However, the exposure could be several times greater.

With the Super Bowl, advertisers get one shot at making their commercial memorable. But with Facebook, the ad would be shown several times per day, and Facebook would have a window of billions in accumulative page clicks to show the ad. With that said, I think advertisers will rush to use this service, and Facebook’s $6.1 billion in revenue during the last 12 months could easily double depending on the demand.

Is there upside from here?

Personally, I have owned Facebook at different times since its IPO. The company has went through its growing pains, but I’ve always believed that by having over one billion users and great social interaction, that Facebook had the potential to become the next Google.

Strangely, Facebook’s valuation is somewhat cheap compared to several companies that operate a similar business model, most notably LinkedIn Corp (NYSE:LNKD). Facebook trades at 14 times sales while LinkedIn Corp (NYSE:LNKD) has an industry best 20.3 times sales. The reason is because LinkedIn Corp (NYSE:LNKD) has done phenomenal at monetizing its users.

DOWNLOAD FREE REPORT: Warren Buffett's Best Stock Picks

Let Warren Buffett, George Soros, Steve Cohen, and Daniel Loeb WORK FOR YOU.

If you want to beat the low cost index funds by 19 percentage points per year, look no further than our monthly newsletter.In this free report you can find an in-depth analysis of the performance of Warren Buffett's entire historical stock picks. We uncovered Warren Buffett's Best Stock Picks and a way to for Buffett to improve his returns by more than 4 percentage points per year.

Bonus Biotech Stock Pick: You can also find a detailed bonus biotech stock pick that we expect to return more than 50% within 12 months.
Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.