The 3 Most Important Revenue Streams for Facebook


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Facebook primarily competes with Google ( GOOG ), Yahoo ( YHOO ), Microsoft ( MSFT ) and AOL ( AOL ) in the display and search advertising markets. Below we highlight three major revenue streams that contribute to Facebook's value. We currently peg Facebook's intrinsic value at $45.1 billion .

The 3 Most Important Revenue Streams for Facebook

1) Text & Display Ads - represents 60% of the company's equity value

Facebook Social Ads are primarily self-serve ads that can be highly targeted to appear to specific users. The Facebook ad system is largely self-serve and provides real-time feedback on the size of the target audience and the suggested bid range to achieve impressions. Facebook makes money based on how many pages are visited and the bidding rates on these advertisements. Facebook offers both cost per click ( CPC ), for which advertisers pay only when users actually click on the advertisement, and cost per thousand impressions (CPM), for which advertisers pay based on the number of times these advertisements are displayed on user pages.

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2) Credits on Games & Applications - 17%

Facebook began testing its virtual currency, called Credits, in 2009 with some popular games on Facebook. In September 2010, Credits passed a milestone when it became the exclusive payment method for most of the games created by Zynga, the No. 1 developer of Facebook applications. Facebook users can also purchase virtual gifts from third party applications using Facebook Credits.

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3) eCommerce - 11%

Facebook has partnered with retailers like Amazon and eBay to leverage its large base of users looking for advice before making a decision as to which product to buy. We expect this business to grow significantly over our forecast horizon.

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See our full analysis and $45.1 billion intrinsic value estimate for Facebook

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Investing Ideas , Stocks , US Markets
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