Facebook (NASDAQ: FB) launched Watch, a long-form video platform that lives within the main Facebook app, about a year ago in the United States. After some modest success, it's ready to take the show on the road, expanding the service to every country Facebook serves.
Watch is similar to YouTube, the leading free video platform owned by Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL). But Facebook has built more interactive features for Watch video creators since its debut, and it's investing hundreds of millions of dollars to seed the platform with interesting content from celebrities and sports leagues.
Continue Reading Below
The global expansion is a good sign that Facebook is optimistic about the long-term potential for Watch. The early numbers Facebook shared about Watch engagement were a bit less encouraging.
Finally, some engagement numbers
Facebook has shied away from providing details about how users are engaging with the new video platform. But in its press release announcing the global expansion, it dropped the fact that it has 50 million people watching at least one minute of video per month on Watch.
Those 50 million represent just over 20% of Facebook's users in the U.S. and Canada. That's not particularly strong engagement considering Facebook was able to help Instagram Stories reach 60% of Instagram's daily active users in a little over a year.
And the fact that just one minute of viewing per month is enough to count a user as "active" isn't very encouraging, either. For reference, YouTube says its users spend an average of one hour on mobile every day.
That said, Facebook did give some details on how engagement is growing. "Total time spent watching videos in Watch has increased by 14X since the start of 2018," the company wrote in its press release. That's excellent growth, and it shows that Facebook may just be starting to get some momentum behind Watch after a slow start.
Overall, the engagement numbers Facebook shared are a bit mixed. While it's good to see strong growth in engagement, its current level of users is pretty underwhelming. Still, some were probably expecting the numbers to be a lot worse.
Opening up more ad space
Facebook is naturally expanding its ad break product to creators in more countries as it rolls out the service internationally. Creators in the U.K., Ireland, New Zealand, and Australia now have immediate access to ad breaks. The ad product will be coming to 21 more countries next month.
Moreover, Facebook is lowering the requirements necessary for creators to enable ad breaks within their content. That could help attract more creators to the platform as the bar for monetization is now lower. It could also open up a lot more ad inventory for Facebook.
Both are key for Facebook, which has forecast a significant slowdown in both revenue and operating profits for the next year. Facebook has faced ad-load saturation in News Feed (i.e., there's no more room for advertisements) for over two years now. It's still managed strong revenue growth on the back of higher average ad pricing, but finding more places to engage users and put ads is still essential to its long-term growth.
Creators have reported mixed results from ad breaks, but big publishers appear to be having success recently. Some bigger publishers saw sequential ad revenue growth between 10% and 40% in the second quarter, with some reaching over $10 million in revenue per quarter. But those same publishers reported revenue-per-viewer metrics about one-eighth what they are for similar videos on YouTube.
Opening up ad breaks to more creators both in the U.S. and around the world is a good start for Facebook, but it clearly has a lot of room to grow to reach monetization levels on par with YouTube. It will have to do so if Facebook wants Watch to be a meaningful source of revenue in the future, considering it's already bringing in $50 billion from its existing ad products in News Feed and Instagram.
Find out why Facebook is one of the 10 best stocks to buy now
Motley Fool co-founders Tom and David Gardner have spent more than a decade beating the market. (In fact, the newsletter they run, Motley Fool Stock Advisor, has tripled the market!*)
Tom and David just revealed their ten top stock picks for investors to buy right now. Facebook is on the list -- but there are nine others you may be overlooking.
*Stock Advisor returns as of August 6, 2018
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.