Facebook had $1 billion in net income on $3.71 billion in 2011, according to its filing to raise $5 billion in an initial public offering. The company’s revenues grew 87 percent year-over-year from the 2010, which in turn more than doubled from the year before.
Payments and fees revenue made up $557 million or about 15 percent of revenues for all of 2011, showing that the company is still heavily dependent on display advertising. Ads made up $3.154 billion in revenue. Just to note, Facebook has $3.91 billion in cash and marketable securities.
If you look specifically at the fourth quarter of last year, revenue grew 55 percent over the same time a year earlier. That’s mostly because of advertising revenue, which climbed 44 percent. Last quarter, Facebook saw the number of ads it served rise 16 percent while the average price per ad also jumped 24 percent. The growth in overall ad inventory has to do with more usage, as Facebook grew to 845 million monthly active users. At the same time, the company also tweaked the prominence of ads on pages and increased the reserve price for ads.
The other key revenue stream to point out is fees or payments, which are mostly from social games that use the company’s virtual currency Credits. Facebook made Credits mandatory for canvas games in July of last year, and that helped payments and fees revenue grow to make up 17 percent of the company’s revenue in the most recent quarter. That’s up from 10 percent share a year ago. So the company is making progress in diversifying from pure display advertising revenue.
The question now is whether Facebook can duplicate its success in payments in verticals outside of gaming. At a market capitalization of $7.41 billion, Zynga is the biggest company to date that the Facebook platform has spawned. But other categories of apps still have far to go. Facebook has made a concerted effort this year to diversify its platform by supporting businesses like Spotify and media properties like The Washington Post, but media and music have been historically difficult to monetize online.
Facebook even acknowledges its dependence on the social gaming ecosystem in the risks sections saying that Zynga accounts for 12 percent of the company’s revenues. That includes both payments revenue and advertising that is displayed alongside Zynga games.
“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 filing says.
Mobile is another potential growth area. Right now, increased mobile usage actually undermines Facebook’s financial performance because the company has yet to display ads in any of its smartphone or tablet apps. On top of that, Facebook does not have its own mobile operating system like Apple or Google, which makes it difficult for the company to earn a 30 percent cut of payments revenue through mobile apps. But Facebook says that showing sponsored stories in the news feed is one way it plans to monetize its mobile presence.
Overall, Facebook says its market opportunity is in display and performance advertising, where marketers can target users either on demographics like age and gender or their likes and preferences. Facebook also says it might expand its Credits virtual currency to other app categories. But it leaves out what we think are interesting revenue opportunities: an ad network that extends well beyond Facebook.com and search advertising from a search engine that marries Facebook’s open graph data and a thorough index of the web.
Facebook also says it is geographically diversifying revenue. The U.S. made up 56 percent of revenues last year, down from 62 percent in 2010 and 67 percent in 2009. This is mostly because Facebook is now growing faster in other countries than in the U.S. plus the fact that it has added international sales offices and more payment methods. The most lucrative markets outside the U.S. are unsurprisingly from Europe and English-speaking countries like Canada and Australia. That said, Facebook is seeing some of its fastest growth from Brazil and India so we might see some even further broadening over the next few years. India actually recently took Indonesia’s crown as Facebook’s second largest market during the past month.
This story is developing and we’ll report more as we go through the financials. Facebook filed to raise $5 billion in a much anticipated initial public offering today. We have a breakdown of the investor table here. We also have a breakdown of how much Facebook has paid for all of the companies it has acquired over the past few years.