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21 February, 2012

Facebook IPO Reveals How It Made $3.71 Billion in 2011

Facebook IPO Reveals How It Made $3.71 Billion in 2011
February 02, 2012 by Peter Pachal
For MASHABLE

Facebook filed for its IPO today, and it revealed a great deal about how it makes money. It’s not too surprising that Facebook said it generates “a substantial majority of our revenue from advertising,” though it also revealed just how much it makes via its partnership with Zynga.

Revenue from Zynga games contribute 12% of Facebook’s bottom line. Facebook said it made $3.71 billion last year, so almost $500 million of that came from Zynga, which includes both users buying virtual goods and services within the games via Facebook Payments as well as “direct advertising” that Zynga bought. Facebook also pointed out that Zynga’s worth even more to Facebook than the numbers say, since the users playing games mean more pages get served to those users, and in turn more ads.

In the filing, Facebook pointed out the risk involved in having such an interdependent relationship with Zynga.

“If the use of Zynga games on our Platform declines, if Zynga launches games on or migrates games to competing platforms, or if we fail to maintain good relations with Zynga, we may lose Zynga as a significant Platform developer and our financial results may be adversely affected,” the document says.

SEE ALSO: Zynga Unveils Massive Bingo for Facebook
Broadly, Facebook divides its revenue into two buckets:

Money made from advertising
Payments and other fees
That second bucket includes the buying of virtual goods and services with Facebook Payments as well revenue from “business development transactions” and mobile providers. Although Facebook doesn’t block out those things separately, it says fees from Facebook Payments are by far the largest thing in the second bucket and that the other fees are “immaterial.”

Both revenue streams have been increasing over the past few years (advertising revenue went from $764 million in 2009 to $3.154 billion in 2011). However, cash coming in from payments jumped up massively recently, from $106 million in 2010 to $557 million in 2011. Facebook says the spike was because it forced all app partners to use Facebook Payments for transactions in July of last year.

“Facebook Payments… began generating significant revenue in the fourth quarter of 2010,” the document says. “Facebook Payments became mandatory for all game developers accepting payments on the Facebook Platform with limited exceptions on July 1, 2011. Accordingly, comparisons of payments and other fees revenue to periods before that date may not be meaningful.”

SEE ALSO: The History of Advertising on Facebook [INFOGRAPHIC]
On the advertising side, the IPO filing has some interesting revelations. If you ever wondered if an advertiser can reach the entirety of Facebook’s audience, the answer is it can. Apparently Paramount did so with its advertising purchase to promote Transformers: Dark of the Moon last summer. Facebook said the studio was able to reach 65 million users in a single day.

In addition, the company revealed some details on how advertisers can leverage Facebook’s platform beyond just display ads. For example, if you check in on Facebook at your local Starbucks, Starbucks can pay Facebook to increase the prominence of that check-in within your friends’ news feeds.

Facebook also confirmed that “sponsored stories,” or Facebook stories created by an advertiser, have begun appearing in the site’s news feed as of January 2012. They were previously limited to the right-hand side of the page.

Like the network itself, Facebook’s revenue is also going international. U.S.-based companies contributed to 62% of the company’s bottom line in 2010, but that figure shrunk to 56% in 2011. Facebook says it’s because the number of international users is growing faster, and due to Facebook opening more sales offices and payment methods abroad.

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