Beyond Twitter: These Companies Are Making Tons of Money From Online Advertising

Beyond Twitter: These Companies Are Making Tons of Money From Online Advertising

The coming Twitter IPO is generating renewed attention from investors toward social networks and other companies operating in the online advertising space. More time and information will be needed to make a clear assessment about Twitter and its own qualities, but Google and Facebook have already proven they can grow and thrive in online advertising.

Much more than search
Google has managed to build an empire over the years, starting from its search engine the company has developed several enormously popular services and applications like Android, Gmail, YouTube, and others which are used by billions of people around the world.

The company has ventured into hardware lately, and although Google does charges a price for some of its services, but the bulk of Google's income is provided by online advertising. Users need to tolerate those ads, and privacy considerations have become a growing concern lately, but people around the planet continue embracing Google and its multiple products.

Google has done a tremendous job in terms of expanding its platform and adapting to emerging trends like the mobile revolution. As of the last quarter, more than 900 million Android devices had been activated around the world, and management claims that over 1.5 million devices are being activated per day.

Larry Page said during the last earnings press conference that Chrome has attracted more than 750 million users, and YouTube reportedly has more than 1 billion monthly active users and growing. Judging by these figures, users around the world just love Google, even if they need to put up with advertising and pay a cost in terms of lost privacy.

When it comes to making money from this business model, Google's ability is unquestioned; the company has compounded sales growth at a 24.8% annually over the last 5 years. Ad prices have been under pressure due to increased competition and growing inventory in a world of multiple screens per person, but Google still delivered a strong increase of 19% in revenue for the second quarter of 2013.

Facebook: The huge social network
Facebook has become so big that it can be considered a utility. Even if you don't enjoy Facebook, it may be the most efficient way to stay in touch with friends and family. When it comes to organizing events, congratulating someone on a birthday or uploading pictures from a wedding, Facebook can be very handy, perhaps even necessary.

Like Google, Facebook charges an indirect cost to the user via advertising and access to private information. However, the numbers show that people around the world are still having a befriending the social network at an amazing rate.

Facebook reported 1.15 billion daily active users in the second quarter of 2013, an increase of 21% year over year. Daily active users were 699 million on average for June 2013, a healthy growth rate of 27% versus the same month in the previous year. On mobile devices, daily active users grew 60% to 293 million, while monthly active users increased 51% to 819 million.

Investors have been deeply concerned about Facebook's ability to monetize its user base in mobile, so a strong performance in that segment was widely acclaimed by the market. Mobile advertising revenue grew 75% sequentially, and it now represents 41% of the company´s overall advertising, that's up from the last quarter when it was at 30%.

The company is not only growing its user base at an impressive rate, it's also doing so while improving its ability to monetize such base: Average revenue per user increased 25% versus last year to $1.60 per user. More users plus higher revenue per user sounds quite a powerful combination for Facebook and its shareholders.

Bottom line
The coming Twitter IPO will provide an interesting opportunity to take a deeper look at the company and its long term prospects as an investment. However, if you are looking for growing companies with successful business models in online advertising, there is no need to wait for Twitter, Google and Facebook maybe just what you are looking for.

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Andrés Cardenal owns shares of Google. The Motley Fool recommends Facebook and Google. The Motley Fool owns shares of Facebook and Google. 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.

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