• by Mark Walsh  @markfwal, January 10, 2014

It’s no secret that Facebook refocused its ad business around mobile last year with dramatic results. By the third quarter, mobile advertising accounting for nearly half its overall ad revenue -- up from almost nothing at the start of 2012. That trend is expected to continue in 2014 as mobile becomes the greatest area of ad revenue, according to JPMorgan’s annual Nothing But 'Net report released this week.
 
Indeed, the report authored by analyst Doug Anmuth projects mobile advertising surpassed desktop advertising in the fourth quarter of 2013 and will rise to 63% of total ad dollars this year.
 
“Quite simply, mobile has moved from a headwind in 2013 to a tailwind in 2014,” he wrote. “We note that Facebook’s mobile revenue growth has been robust, despite relatively modest ad load increases, suggesting users, usage and ad-quality improvements can continue to drive strong revenue growth going forward.”
 
Anmuth noted that increasing the ad load in the Newsfeed was a key to ad growth last year, although the company indicated earlier this year that it wouldn’t ramp up advertising beyond a ratio of one ad per 20 organic posts, or 5%. Instead, future gains would come from ad-quality improvements and increased advertiser competition driving up pricing.
 
“However, we remain confident that Facebook is not stopping ad load increases, but only slowing them in its ongoing efforts to optimize the user experience -- the right thing to do over the long term, in our view,” stated the report. JPMorgan estimates that Facebook’s mobile ad revenue will more than double from last year to $6.3 billion.
 
Optimism around the company’s mobile business last year, however, was dimmed by comments from Facebook and other sources suggesting that teens were drifting away from the social network in favor of alternative platforms like Twitter and Snapchat. A Pew Research Center study on social media usage last month suggested that the use of Facebook by young adults (18-29) has plateaued.
 
The JPMorgan report concludes that the decrease in daily use by teens is limited to those 13-15, with some shifting to Facebook-owned Instagram. It notes that the company is working on improving Facebook Messenger, its own messaging app, as well as enabling direct messaging in Instagram. The investment firm believes these steps will help the company better compete with Twitter and popular messaging apps this year.
 
With ads just launched on Instagram at the end of 2013, JPMorgan expects Facebook will continue to roll out advertising slowly this year, and that the ad load over time could be lower than on the parent site. As a result, the firm doesn’t factor Instagram ad revenue into its Facebook estimates for 2014.
 
What about the most anticipated form of advertising on Facebook this year -- video?

The report gives surprisingly little focus to the rollout of video advertising, which has been subject of fervent speculation over the last year or so. The rumors turned to reality in December, when the social network announced it had launched a limited test of autoplay video ads in the mobile and desktop Newsfeed.
 
The study states that JPMorgan is “positive” on pending video ads along with other nascent ad initiatives, like Instagram monetization and FBX in the mobile Newsfeed to build demand among brand advertisers. There are no specific estimates for video ad revenue in 2014. The investment firm projects that Facebook’s overall revenue, however, will grow 42.5% to $10.7 billion from an estimated $7.6 billion last year. That rate would mark a modest decline from 49.4% in 2013.
 
Not everyone is as bullish on Facebook’s fortunes this year. Augie Ray, a former Forrester analyst and director, global voice of customer strategy at American Express, recently wrote a mock “2014 in Review” blog post recounting Facebook’s "Very Bad Year.” In it, he muses the social network suffered from a stagnant user base, slowing ad growth and a lack of revenue diversification beyond advertising.