Social Media

Facebook's edge over YouTube on video ads: Munster

Ad wars: Facebook vs. YouTube
Ad wars: Facebook vs. YouTube

It's no surprise that Facebook is catching up to Google's YouTube when it comes to video advertising because Facebook understands consumer behavior, noted analyst Gene Munster said Monday.

A new report by Ampere Analysis is predicting a new advertising "arms" race between Facebook and YouTube, with Facebook gaining ground on its rival as an outlet for large companies looking to market their products through online video.

Facebook does "a good job of making those ads effective and relevant but in terms of user behavior, no one is doing it better than Facebook in understanding how people's communications [are] evolving," said Munster, managing director and senior research analyst at Piper Jaffray.

"Initially people communicated with text; now it's morphing over to images and video."

Dado Ruvic | Reuters

In an interview with CNBC's "Closing Bell," Munster pointed out that Facebook's purchase of Instagram and its attempt to buy Shapchat are evidence it understands behavioral change.

The Internet will overtake TV advertising in 12 key markets, representing 28 percent of global ad spending by 2017, according to separate research by media-buying firm ZenithOptimedia. Ad spending is projected to reach $531 billion this year.

Online video is now growing faster than any other digital category or subcategory, rising 33 percent in 2014, and is forecast to grow 29 percent a year through 2017, Zenith said.

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Marketing expert Mark Stevens said there are two reasons he likes to put clients' ads on Facebook over YouTube.

One, "they're incorporated into the feed so you don't have the gatekeeper of the ad stopping you from stopping the content you want to see," the CEO of the marketing advisory firm MSCO told "Closing Bell."

Plus, Facebook has a "tremendous" ability to identify the demographic and psychographic information he wants for clients, Stevens added. "It proves itself metrically that it works very well."

Meanwhile, Piper Jaffray's Munster also thinks Facebook is the best play on virtual reality, the "next big paradigm shift in computing," thanks to its recent acquisition of Oculus.

Because of that, he now has a price target of $120 on Facebook.

"Ultimately it's going to be live sports, live entertainment, games, a lot of things you just can't do today," Muster said. "I think they'll take their existing core products of Facebook, Instagram, WhatsApp, and morph that around Oculus and ultimately have a longer sustainable growth."

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—Reuters and CNBC's Linda Sittenfeld contributed to this report.

Disclosure: Piper Jaffray makes a market in securities of Facebook and Google.