Facebook Is Finding New Places to Put Ads

Facebook (NASDAQ: FB) has been very upfront that its main feature, the news feed, doesn't have any more room to show ads. In fact, it's taken steps to reduce the number of messages users see from businesses in their feeds.

But Facebook has multiple products with hundreds of millions of users. For example, the company has built a powerful social search engine into its app and launched Facebook Marketplace just over two years ago. Both attract a massive amount of potentially high-value traffic, and now Facebook is taking steps to monetize both.

Searching the Marketplace for ad inventory

Search advertising can be one of the most valuable forms of digital advertising because it's able to tap into what users are thinking about at any moment. That's how Google grew into a $100 billion business for Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL). If a user types in something like "Mexican restaurant," Google can serve ads from Mexican restaurants, and it's likely that a user will click on them.

However, Facebook doesn't plan to use keywords to direct targeted adverting to users of its general or its marketplace search tools. That said, users browsing the marketplace likely are doing so with the intent to buy. That could make them more valuable to retail advertisers.

Facebook users conducted 2 billion searches per day in 2016. Daily active users have climbed nearly 50% since it reached that mark, so that figure might be closer to 3 billion today.

Meanwhile, Marketplace monthly users climbed to 800 million as of this summer. Facebook is quickly building expertise in shopping thanks to the popularity of shopping on Instagram, so it could benefit from advertiser interest in getting to is engaged shopping audience.

Google's shopping ads have been a major growth driver for its core search engine in recent years. Shopping ad spend on Google grew 33% in the third quarter, according to data from Merkle, and Google Shopping Ads generated 87% of ad clicks for retailers in the quarter. There's a growing demand for these kinds of ads, and Facebook has an audience to serve them to.

Reinvigorating revenue growth

Facebook has warned of an ad revenue slowdown since 2016, but it's only just starting to show up. Last quarter, ad revenue grew 33% year over year, a significant slowdown from the 49% year-over-year growth the company posted in the third quarter last year. Analysts expect Facebook's revenue growth to slow to just 24.5% in 2019.

Facebook is undergoing a transition to more sharing with Stories, which monetize at a lower rate than the news feed. Facebook has incentive to experiment with other areas to show high-value ads to offset displaced news feed ads that have migrated to Stories. If Facebook can maintain news-feed style impressions while adding in Stories impressions, valuable impressions from Instagram, and ads in Messenger and WhatsApp, it ought to show considerable revenue growth still. Search ads -- both in its core app and in Marketplace -- may be yet another cash cow for Facebook.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Adam Levy owns shares of Alphabet (C shares) and Facebook. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), and Facebook. The Motley Fool has a disclosure policy.