Pinterest Moves Into Video Ads To Accelerate Revenue Growth

By Markets Fool.com

In a move that should surprise exactly no one, social media rising star Pinterest will soon challenge rivals Facebook (NASDAQ: FB) and Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) in the booming market for video advertisements.

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Image source: Pinterest

To make good on its whopping $11 billion valuation, Pinterest has shifted its efforts in recent months to emphasize improved monetization of its over 100 million monthly active users (MAUs). Aside from clearly helping spur new sales growth, let's quickly review this move's implications for Pinterest and its key social media rivals.

Pinterest turns to video ads

According to a host of reports, Pinterest will begin rolling out a beta version of its own video advertising product in coming weeks. These new sponsored videos reportedly last up to five minutes and will remain native to Pinterest's platform.

Unlike video ads on rival Facebook, Pinterest's sponsored videos will automatically play only as users scroll up or down in their feeds and will stop playing once a user stops scrolling. Once clicked upon, Pinterest's sponsored videos will open into a new page where the video will then play with sound in its entirety. Pinterest's marketing partners will also be able to position six so-called "featured pins" beneath the sponsored video, which can highlight additional relevant content relating to sponsored videos.

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The moves come alongside Pinterest's broader push into video content. Earlier this month, Pinterest published a corporate blog post detailing its coming plans for video on its platform. As alluded to above, Pinterest plans to unveil its own native video hosting capabilities in the coming weeks, which should help keep users on its platforms for longer amounts of time.

Image Source: Pinterest

In general, Pinterest has seen a sharp increase in the number of video posts on its service. According to the company, pins featuring video content increased some 60% year-over-year, which likely speaks to a consumer preference for the medium. However, in terms of the revenue opportunity video presents the company, Pinterest also disclosed that videos on its service enjoy twice the engagement of videos on other services. Seen this way, it seems quite likely that Pinterest could command above-average rates for its forthcoming video ads. This once again speaks to Pinterest's place as an emerging powerhouse in e-commerce and digital advertising, a movement that Facebook and Alphabet investors would do well to watch closely.

Pinterest: a new challenger to Alphabet and Facebook

At present, Facebook and Alphabet utterly dominate the digital advertising space, collecting the bulk of digital advertising spending between the two of them. As just one example, Alphabet collected roughly 50% of all U.S. digital ad dollars in 2015 according to the Interactive Advertising Bureau. Though significantly behind Alphabet, Facebook garnered a still-impressive 13% of this same category. These figures suggest little can be done to challenge such powerful incumbents. However, in reality, upstarts like Pinterest and Snapchat figure to do exactly that.

Like Alphabet in search, Pinterest users demonstrate outsized intent-marketing jargon for browsing with the desire to try or buy a good or service. In fact, nearly 60% of Pinterest users leverage the service to find and buy products according to Mary Meeker's always-useful 2016 Internet Trends report. For context, the platform with the second highest purchase intent -- Facebook -- saw only 12% of its users access the service to find and buy items. That massive disparity bodes extremely well for Pinterest developing a highly profitable business in the years to come, and its move into video advertisements only furthers this narrative. So while Pinterest remains far smaller than larger rivals like Facebook and Alphabet, tech investors everywhere would do well to closely watch the company's quiet, but impressive new growth efforts.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Andrew Tonner has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), and Facebook. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.