01
Feb
12

It’s striking how little $ Facebook makes

Everyone thinks Facebook will grow, and I’m not a skeptic. How could I be — I don’t know anything about investing.

However, Facebook doesn’t make that much in profit compared to a whole host of other corporations. Home Depot makes 3x more than it. Also in pg. 12 of the IPO, facebook warns about the source of its revenue, and how unstable it might be. It’s just kind of funny to hear Facebook say this itself and acknowledges it.

We generate a substantial majority of our revenue from advertising. The loss of advertisers, or reduction in spending by advertisers with Facebook, could seriously harm our business.

The substantial majority of our revenue is currently generated from third parties advertising on Facebook. In 2009, 2010, and 2011, advertising accounted for 98%, 95%, and 85%, respectively, of our revenue. As is common in the industry, our advertisers typically do not have long-term advertising commitments with us. Many of our advertisers spend only a relatively small portion of their overall advertising budget with us. In addition, advertisers may view some of our products, such as sponsored stories and ads with social context, as experimental and unproven. Advertisers will not continue to do business with us, or they will reduce the prices they are willing to pay to advertise with us, if we do not deliver ads and other commercial content in an effective manner, or if they do not believe that their investment in advertising with us will generate a competitive return relative to other alternatives. Our advertising revenue could be adversely affected by a number of other factors, including: 

 

decreases in user engagement, including time spent on Facebook;

 

increased user access to and engagement with Facebook through our mobile products, where we do not currently directly generate meaningful revenue, particularly to the extent that mobile engagement is substituted for engagement with Facebook on personal computers where we monetize usage by displaying ads and other commercial content; 

 

product changes or inventory management decisions we may make that reduce the size, frequency, or relative prominence of ads and other commercial content displayed on Facebook;

 

our inability to improve our analytics and measurement solutions that demonstrate the value of our ads and other commercial content;

 

decisions by advertisers to use our free products, such as Facebook Pages, instead of advertising on Facebook;

 

loss of advertising market share to our competitors; 

 

adverse legal developments relating to advertising, including legislative and regulatory developments and developments in litigation;

 

adverse media reports or other negative publicity involving us, our Platform developers, or other companies in our industry;

 

our inability to create new products that sustain or increase the value of our ads and other commercial content 

 

the degree to which users opt out of social ads or otherwise limit the potential audience of commercial content;

 

changes in the way online advertising is priced;

 

decreases in user engagement, including time spent on Facebook;

 

increased user access to and engagement with Facebook through our mobile products, where we do not currently directly generate meaningful revenue, particularly to the extent that mobile engagement is substituted for engagement with Facebook on personal computers where we monetize usage by displaying ads and other commercial content;

 

product changes or inventory management decisions we may make that reduce the size, frequency, or relative prominence of ads and other commercial content displayed on Facebook;

 

our inability to improve our analytics and measurement solutions that demonstrate the value of our ads and other commercial content;

 

decisions by advertisers to use our free products, such as Facebook Pages, instead of advertising on Facebook;

 

loss of advertising market share to our competitors;

 

adverse legal developments relating to advertising, including legislative and regulatory developments and developments in litigation;

 

adverse media reports or other negative publicity involving us, our Platform developers, or other companies in our industry;

 

our inability to create new products that sustain or increase the value of our ads and other commercial content; 

 

the degree to which users opt out of social ads or otherwise limit the potential audience of commercial content;

 

changes in the way online advertising is priced;

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