Facebook (NASDAQ:FB) is the world’s largest online social network. While the company primarily derives its revenues from the sale of advertising space on its online platform, Facebook also earns some revenue from payments and other streams. The company owns the Facebook platform, Instagram, Messenger, Whatsapp and Oculus. Additionally, the company has many investments in startups across the globe spanning sectors. Below we provide a breakdown of the company’s primary revenue streams:
- Advertising revenue (98.5% of 2018 revenues): Facebook generates the vast majority of its revenue from advertising. This revenue is earned through displaying ad products on Facebook, Instagram, Messenger and third-party online properties (websites or mobile applications). The earnings for the company are measured by way of the number of impressions delivered or the number of use actions (such as clicks). Facebook delivers its ads to users based on user profiles and Facebook’s algorithms to match marketers’ desired target audience to deliver measurable ROI on marketer spend. The price per ad depends on factors including but not limited to marketer interest in user profile, demand for user mindshare, geography, ad relevance for the user and other aspects as determined by Facebook’s matching algorithms. Between 2016 and 2018, the contribution of advertising revenue to total revenue has increased from 97.3% to 98.5%. Given the cumulative size of Facebook’s active user base, we expect this trend to continue, with the contribution from advertising revenue reaching 99% by 2020.
- Payments, Other Fees and Oculus revenue (1.5% of 2018 revenues): This revenue stream is generated primarily by way of the net fees that Facebook receives from developers using its Payments infrastructure, in addition to other revenue streams such as the Oculus business. Facebook is reportedly working on a blockchain-based payments solution, which could provide some long-term upside. Between 2016 and 2018, the contribution of this revenue stream to total revenue has decreased from 2.7% to 1.5%, primarily due to the substantial growth in ad revenues. We expect this to continue, with the stream’s contribution declining to 1% by 2020.
Our interactive dashboard on Facebook’s Revenue Breakup outlines our estimates Facbook’s revenue. You can modify any of the key drivers to visualize the impact of changes, and see all Trefis technology company data here.
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