Facebook's Publicis Deal Cements Near-Term Strategy

NEW YORK (TheStreet) - As investors await clarity as to how Facebook (FB) CEO Mark Zuckerberg will make use of recent acquisitions such as virtual reality upstart OculusVR and messaging application WhatsApp, they should be increasingly confident in the company's digital marketing strategy.

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On Monday, Facebook signed a multi-year ad partnership with Publicis's Starcom MediaVest Group that focuses on the recent launches such as Facebook's Audience Network, video ads and the company's increasing use of user data as a targeting tool for advertising campaigns. The Publicis partnership may be Facebook's most ambitious to date and is indicative of the company's strong execution in the advertising market as CEO Zuckerberg tries to simultaneously plot out longer term strategies.

Last quarter, Facebook COO Sheryl Sandberg devoted a significant portion of her comments on a conference call with analysts to pull back the curtain on the company efforts in digital advertising and marketing. The Publicis deal appears to be an early read on the fruits of those efforts, which could drive earnings growth for Facebook in coming quarters.

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 in 2014, according to eMarketer. In North America, digital ad spending is expected to grow 16.4% to $53.7 billion.

No financials of Facebook's Publicis partnership were publicly disclosed, however, reports from AdAge and The Wall Street Journal indicate the multi-year deal may be worth hundreds of millions of dollars.

Publicis will build advertising tools that integrate with Facebook's Audience Network, and will be able to give its clients access to other parts of Facebook such as Instagram and video ads. Facebook will also offer Pubicis early access to new products, especially those surrounding audience targeting and the measurement of the efficacy of a campaign.

Omnicom (OMC), an advertising giant that just ended a $35 billion merger effort with Publicis, is already a partner with Instagram. It would be no surprise if Facebook's deals with Publicis and Omnicom play an increasingly prominent role in the digital advertising market.

"This partnership signals how important the partner ecosystem is here at Facebook. Agencies, brands, and Facebook all have one common goal: to make great ads and put them in front of the right people," Patrick Harris, director of Global Agency Development said of the Publicis partnership in an emailed statement.

"Our work with Publicis will center on bringing clients closer to our products, and creating new planning and measurement tools to make buying easier, more efficient, and ultimately prove out ROI," he added.

Facebook's Marketing Plan

Citing specific Facebook campaigns run by Canadian retailer Sport Chek and 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.

The Plan Is Working

In the past 12-months, Sandberg said Facebook focused on its proprietary targeting tools to help advertisers improve the effectiveness of their ad campaigns, directly reaching target audiences. Ten times more marketers are now using Facebook's Custom Audiences feature than the first quarter of 2013, Sandberg said.

That would be a positive across Facebook's burgeoning ecosystem. The more Facebook marketers use targeting tools like Custom Audiences, the more relevant those ads become to Facebook's users.

Sandberg also said Facebook is simplifying its ad tools so that smaller companies can find a benefit in Custom Audiences and Partner Categories. Those tools are now available in a self-service ad creation process. For direct response marketers, Facebook now includes 'buy now' or 'install now' buttons that improve the efficacy of their ads.

Facebook's investment measurement tools are also improving, Sandberg said. Online conversion measurement tools now enable direct response advertisers to measure the impact that Facebook campaigns have on sales. "[We] recently launched new offline conversion tools to measure in-store sales, which have yielded positive initial results," Sandberg said.

The development of new products like premium video, ads on Instagram and a recently launched ad network test could expand Facebook's marketing platform. Those projects, however, won't entirely be seen in 2014 earnings.

Marketing and digital ad campaign wins could be a tailwind for Facebook, especially at a time when larger entrenched players are distracted and growth hurdles become tougher for the social network.

Analysts React

Wall Street analysts have generally taken a positive view on Facebook's recent efforts in the digital advertising and marketing space. That optimism is a dramatic change in tone after Facebook initially languished as a public company as investors questioned the social network's relevance on mobile devices and the advertising opportunity away from desktop usage.

Recent quarters, however, have solidified confidence in Facebook that it can drive meaningful engagement and earnings from mobile users.

"From 0% in 1Q:12, mobile revenue grew to $1.34B, or 59% of total ad revenues in 1Q:14, driven by the advent of news feed ads and growth in volume and pricing. We expect this trend to continue, helped by the launch of the Facebook Audience Network (FAN), currently in beta, and autoplay video ads," Youssef Squali, a Cantor Fitzgerald analyst said in a Tuesday client note.

Squali added that Facebook may be playing catch up to competitors such as Google's (GOOG) AdMob, however, the social network's first party data should eventually give it an unmatched ability to identify targeted audiences for marketers, while showing a clear ROI. Autoplay video ads, monetization efforts underway at Instagram and recent acquisitions like WhatsApp should also drive growth for Facebook in coming years Squali said.

>> Read More: Facebook Navigates Tough Road with Marketing

>> Read More: Facebook's 10-year Plan

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