- Facebook is an attention-based business model, which revenues primarily come from advertising (over 98% as of June 2020).
- The US and Canada represent the markets with the highest monetization power, together with Europe.
- Other markets, like Asia-Pacific, are important in the coming years, yet they have a lower monetization bandwidth as of June 2020.
- Mobile is the highest growing advertising segment in terms of revenues.
- The overall stability of the Facebook business model in the coming years will highly depend on its ability to retain users’ engagement on the platform, and better monetize other markets, beyond the US and Canada.
- Facebook income was reduced in Q2 2020, by the payment of the FTC fine for $5 billion.
- Facebook is expanding in India, with an investment of $5.7 billion in Reliance Jio Platforms, the largest media group in India.
A visual glance at the Facebook business model key metrics
FMAP indicates the number of active users on all the products part of the Facebook Inc. portfolio (Facebook, WhatsApp, Instagram, Messenger):
The average revenue per person decreased from $6.20 in Q2 2019, to $6.10 in Q2 2020. Overall the Facebook Inc. revenues increased, thanks to the offset of Q1, where the company recorded an higher ARPP ($6.03) vs. 2019 ($6.2).
Let’s give a look at the breakdown of the average revenue per person in each geographic region.
The ARPU increased only in the US&Canada and Europe, while it decreased in Asia-Pacific and Rest of World.
Overall the company recorded an increase in monthly active users, for the portfolio of products. It went from 2.76 billion to 3.14 billions by Q2, 2020.
Overall revenues increased thanks to the number of ads served.
A more indepth look at Facebook advertising machine
Revenue in the six months ended June 30, 2020, compared to the same period in 2019, increased by $4.46 billion, or 14%.
What caused the multi-billion dollar increase of Facebook advertising machine? Mobile news feed…
Increases in revenues were mostly due to an increase in the number of ads delivered, partially offset by a decrease in the average price per ad. In short, the substantial increase in advertising served on the platform, offset the reduced advertising costs for businesses on the platform.
In fact, the number of ads delivered increased by 40%, faster than the increase of 33% in the same periods in 2019. This shows the continued growth of the Facebook advertising machine, even during the pandemic.
The increase in the ads delivered was driven by:
- An increase in the number and frequency of ads displayed across Facebook products.
- And an increase in users and their engagement, particularly with Facebook mobile News Feed.
As of the six months ended June 30, 2020, the average price per ad decreased by 19%, compared with a decrease of approximately 4% in both of the same periods in 2019. The decrease in average price per ad was primarily driven by a decrease in advertising demand globally due to the COVID-19 pandemic beginning in the first quarter of 2020.
The decrease in average price per ad was also caused by an increasing proportion of the number of ads delivered as Stories ads and in geographies that monetize at lower rates.
Continued growth in the United States, Canada and Europe (for the factors shown above) was the primary driver for Facebook growth. However, to notice that also the sustained growth in new markets, like Asia-Pacific and Rest of World contributed to Facebook revenues growth.
In the second quarter of 2020, Facebook continued to focus on its main revenue growth priorities:
- Helping marketers use products to connect with consumers.
- Making ads more relevant and effective (more targeted).
Moving faster on the development of AR/VR consumer hardware
Research and development expenses in the six months ended June 30, 2020 increased by $2.30 billion, or 37%, compared to the same periods in 2019. The increase was primarily due to increases in payroll and benefits expenses as a result of a 41% growth in employee headcount in Facebook engineering team and other technical functions. Part of the headcount increase might have been due to the expansion of the engineering team able to help the platform’s compliance with new privacy regulations.
On the other hand, the headcount increase was also due to functions supporting consumer hardware product development. In short, It seems that Facebook is pushing much more on the development side of AR/VR sets.
Some key highlights:
- Facebook’s daily active users (DAUs) were 1.79 billion on average for June 2020 (an increase of 12% year-over-year).
- Facebook monthly active users (MAUs) were 2.70 billion as of June 30, 2020 (an increase of 12% year-over-year).
- Family daily active people (DAP) was 2.47 billion on average for June 2020 (an increase of 15% year-over-year).
- Family monthly active people (MAP) was 3.14 billion as of June 30, 2020 (an increase of 14% year-over-year).
- Revenue was $36.4 billion by June 2020, compared to the same period of 2019, (an increase of about 14% year-over-year).
- Total costs and expenses were $24.56 billion.
- Income from operations was $11.85 billion, with a 32.5% operating margin.
- Headcount was 52,534 as of June 30, 2020 (an increase of 32% year-over-year).
- Facebook Business Model
- How Mobile Advertising Is Driving Facebook Growth
- The Advertising Economy: Inside Facebook Money-Making Machine
- How Does Facebook Make Money? Facebook Hidden Revenue Business Model Explained
- The Hacker Way: Inside Facebook Business Strategy
- ARPU: This Is How Much You’re Worth To Facebook
- Visualizing Facebook ARPU Over The Years And Why It Matters