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Facebook a Winner in Omnicom's Divorce With Publicis

Updated from 10:20 a.m. ET with analyst commentary and afternoon share prices

NEW YORK (TheStreet) - Facebook (FB - Get Report) may have just gotten a major break after advertising giants Omnicom (OMC - Get Report) and Publicis said they were calling off a $35 billion merger of equals as a result of conflicting corporate cultures, the complexity of the deal and the time it took to close the transaction.

Currently, the ballast of Facebook's earnings is its headlong push into digital advertising and marketing, not rising engagement among its growing base of mobile users. The company appears on the verge of creating a marketing platform, which can satisfy shareholders as CEO Mark Zuckerberg takes big swings at large acquisitions such as WhatsApp and OculusVR that could pay off in the future.

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As Facebook spent the past 12-months improving its suite of analytic, targeting and measurement tools for its marketing platform, Omnicom appears to have been mired in a bureaucratic nightmare. Of course, Omnicom said on Friday it hadn't lost focus on its business during the merger effort and hadn't lost key customers or employees.

But that may be beside the point.

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Facebook is moving so fast into digital advertising and marketing, and with such a big tentpole in its billion member social network, it will invariably emerge as a major player in the industry to challenge Omnicom and Publicis.

Facebook's advertising grew over 80% to $2.27 billion in the first quarter, while mobile advertising revenue rose to about 59% of overall revenue, a near-doubling from year-ago levels. By contrast, digital ad spending worldwide is only expected to grow 25% to $137.5 million, according to eMarketer. In North America, digital ad spending is expected to grow 16.4% to $53.7 billion.

Clearly, Facebook is taking market share. The company may also be flying under the radar in its marketing and advertising efforts.

"As the ad agency model continues to evolve and meet the challenges of a rapidly challenging advertising landscape as the digital world continues to move at light speed, one can draw some cautious inferences from today's news-flow," Jefferies analysts wrote.

Omnicom shares were rising over 1.5% to $67.34 on statements made by the company that it would be buying back shares aggressively in coming days.

A Threat to Google

When the merger of Omnicom and Publicis was announced in July 2013, there was speculation that the deal might help the company compete against entrenched ad-sellers like Google (GOOG - Get Report), which is a top buyer of digital ads sold by agencies like Omnicom.

On Friday, Omnicom backed off from such assertions, which were bandied about in media reports that discussed the strategic imperatives of its merger of equals with Publicis.

"We never said that Google was someone we were doing this merger to compete against," Omnicom said on Friday. "We think of Google as a client that purchases digital media," the company added.

Omnicom acknowledged that digital media is the future of advertising and that big data analytics are going to be crucial to to the value proposition of those ad campaigns. "Data, in and of itself is not that important. It is the insight that is important," Omnicom said. The company believes it is ahead of the curve with over 1,000 staff dedicated to providing clients such analytic insight.

"Though we do believe that the growing role of data and technology presents a level of new challenges, we didn't believe this combination of assets would materially change the competitive balance," Wells Fargo analysts said of the Omnicom and Publicis merger.

Facebook, however, appears on the verge of a far more compelling strategy that leverages the back-end of its social network to derive insight, analytic data points, and targeting tools that are likely to prove compelling to ad buyers. Meanwhile, Facebook may increasingly get calls directly from companies, instead of relying upon middle men and agencies.

Facebook's Marketing Plan

Citing specific Facebook campaigns run by Canadian retailer Sport Chek and ice cream company Ben & Jerry's, COO Sheryl Sandberg outlined on Facebook's first quarter earnings call how companies can use the social network for an industry-leading return on digital ad dollars spent.

Sandberg's discussion indicated Facebook may emerge as an advertising tool so crucial to businesses' bottom lines it may eventually garner more concrete comparisons to Google.

"We have a great opportunity to build the world's first platform for personalized marketing at scale. It's early in that journey and we're going to stay focused on making the right investments in our ad business and executing against our plan," Sandberg said.

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