Facebook ads cost 43% more in Q4 as users spent less time on site

Dive Brief:

Facebook's ad revenue during the fourth quarter of 2017 jumped 48% for a total of $12.8 billion while mobile ad revenue increased by 57% to $11.4 billion, the company revealed in a conference call with analysts to discuss the latest earnings report. Overall, Facebook's revenue grew 44% to reach $13 billion.
The average price per ad climbed 43% during the same period while the number of ad impressions served increased just 4%. These results were driven primarily by feed ads on Facebook and Instagram.
The social media giant shifted which videos are shown to users during Q4, prioritizing content that encourages meaningful social interactions over video that can be passively viewed. Facebook estimates that these updates decreased time spent on the site by approximately 5% during the quarter, or an estimated 50 million hours every day.

Dive Insight:

CEO Mark Zuckerberg used the conference call with analysts to impress upon the business community how serious it is about changing the News Feed experience in ways that aim to improve people's well-being and society overall. For marketers, the big takeaway is that it's getting significantly more expensive to reach Facebook users, with ad prices rising at a much higher rate than the number of impressions, while time spent on the social network is falling. Looking ahead, Chief Financial Officer David Wehren said Facebook expects to grow the number of impressions by a modest pace in 2018.

Engagement on Facebook could continue to evolve and decline as the changes made during Q4 were just the tip of the iceberg. So far this year, Facebook has announced a number of other changes that are likely to impact engagement levels including prioritizing content from trusted, high-quality sources, pouring significant resources into preventing the spread of "fake news" and hate speech as well as testing a way for users to discover who's running an ad. Going forward, Facebook expects its premium video service Watch, as well as its Stories format, to grow in importance as less time is spent on the classic News Feed.

Zuckerberg also used the conference call to try to reassure the financial community, and by extension marketers, that better-quality experiences will be good for everyone in the long term even if ad prices go up as a result.

"When you care about something, you're willing to see ads to experience it," Zuckerberg said in the call. "But if you just come across a viral video, then you're more likely to skip over it if you see an ad. So I want to be clear, the most important driver of our business has never been time spent by itself. It's the quality of the conversations and connection. And that's why I believe this focus on meaningful social interactions is the right one."