Advertising Fuels Facebook’s Monster $5 Billion IPO

Company’s ad revenue hit $3.2 billion in 2011

Even though Facebook has barely gotten started when it comes to advertising, the company can thank Madison Avenue for the stunning $5 billion initial public offering (IPO) it filed on Wednesday (Feb. 1). Advertising dollars accounted for 85 percent of Facebook’s $3.7 billion in revenue for 2011, and U.S. advertisers alone contributed 56 percent to the company’s 2011 revenue pile, per the SEC filing.

Facebook’s total revenue swelled by 88 percent from the prior year, with revenue from advertising jumping by 69 percent to $3.2 billion. Yet according to Debra Williamson, analyst at eMarketer, Facebook’s ad business still has “an uphill battle” in terms of attracting major advertisers, but it could bolster the business by launching its own ad network.

“Facebook is distributed across the Web and has all the pieces in place [to run an ad network],” said Williamson. But, she noted, "Every time I ask them about it, they say no.”

Avi Savar, founding partner of social agency Big Fuel, said that Facebook has “barely scratched the surface of what they can do with advertisers.” He added, "Most brands still live in a CPM world.”

For example, Facebook claims an amazing 425 million mobile users, yet the company has yet to run a single mobile ad. “We believe that we may have potential future monetization opportunities such as the inclusion of sponsored stories in users’ mobile News Feeds,” reads the S-1 filing. Bloomberg reported in December that Facebook plans to start running mobile ads by the end of March.

Aside from advertising, games played on Facebook drove a significant chunk of the company's revenue. Social gaming giant Zynga alone accounted for 12 percent of Facebook’s overall 2011 revenue. And last July, Facebook began requiring game developers to use Facebook Payments when executing transactions via Facebook's platform. As a result, revenue from payments and other fees chipped in $557 million to Facebook's bottom line in 2011, a surge of 425 percent versus 2010.

Among the other interesting disclosures in Facebook's IPO was that the site added 237 million monthly active users in 2011, closing the year with 845 million. On a given day the company said it averages 483 million unique users—a staggering level of user loyalty.

In addition, Facebook said more than 4 million businesses run Pages on the site and more than 37 million Pages had garnered 10 or more “likes” via virtual goods sales processed by Facebook and advertising purchased by Zynga.

Lastly, Facebook revealed that it increased its spend on sales and marketing by 132 percent year over year to $427 million.

Publish date: February 1, 2012 © 2020 Adweek, LLC. - All Rights Reserved and NOT FOR REPRINT