Report: Facebook Nears $500M Net Income on $1.6B Revenue in First Half of 2011, Mostly Tracking Projections

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By Eric Eldon Comment

Facebook appeared to be on course to make $4 billion in revenue for 2011, we and other publications heard from sources close to the company in January, with net income at around $1 billion. Reuters has an update on that estimate today, citing a source that says Facebook actually made $1.6 billion in the first half of the year, with net income near $500 million so far.

Looking at the past and present numbers together, revenue is lower than projected at this point, but net income is on track. That in turn suggests that costs have come in lower than expected.

Facebook doesn’t currently provide information on its finances, so we don’t know for sure what has caused its business to grow. But financial documents leaked in January during Goldman Sach’s fundraising efforts indicated that Facebook had made roughly $2 billion in 2010, with profits up to $600 million. That was more than double 2009.

Two additional trends have started to kick in, that could cause revenue to grow more sharply in this second half of the year, and continue the annual doubling trend.

One is that Facebook has finalized Credits as the only paid currency for third-party canvas apps on its platform. While Zynga and other top social game developers began transitioning as early as a year ago, the policy only went fully into effect on July 1st. From that point, we can say for certain that Facebook is getting 30% of revenue from basically all virtual goods transactions in apps.

The other trend is what’s been happening in Facebook’s marketer ecosystem. The Ads API, a way for larger advertisers to buy big, automated, fine-tuned ad campaigns through third-party tools, has launched publicly after spending years in private beta testing. The result is that companies who have figured out how to get a good return on investment from ad campaigns can now spend in bulk, like they do with online ad leader Google through Adsense and Adwords. In the meantime, Facebook has been busy building up its own sales teams around the world, and introducing a variety of new products and advertiser services to make spending easy and worthwhile.

While revenue is an increasingly important indicator for the company as it matures, it still has lots of growing left to do. It has opted against short-term revenue boosters like homepage takeover ads, in contrast to distant competitors like MySpace. Overall, it just needs to show some sort of serious revenue growth every year in order to get investors excited about its long-term future. If and when an offering happens, public investors will be hoping the company repeats the post-IPO success of many other companies over the years, and ultimately more than justify the $70 billion and $80 billion valuations that the private-market stock has been trading at.