Facebook IPO: How does Facebook make its money?

February 2, 2012

Facebook’s IPO filing shows that the company brought in about $3.7 billion in revenue and made $1 billion in profit in 2011.

Advertising makes up the lion’s share of the company’s revenue — $3.1 billion — though payments and other fees have been making up for a larger percentage of revenue over the past two years.

Sixty-six percent of Facebook’s total revenue from 2011 was made in the U.S., but non-domestic sources have accounted for an increasing amount of the company’s revenue in the past two years. In 2009, non-domestic sources brought in around one-third of the company’s revenue; in 2011, it was 44 percent.

That’s in line with estimates, said technology analyst Joe Magyer. What is interesting about the financial information revealed in the filing, he said, is that Facebook appears to make about the same per user as Zynga does.

“You would think that because Facebook has so much mind share and eats up so much of our time, that it would be higher,” he said. “It’s pretty far behind the likes of Google; that speaks to the organization being pretty immatures from a business standpoint.”

On the bright side, however, Magyer said that Facebook still has a long way to grow.

Right now, he thinks that a valuation of $75 to $100 billion is a bit ridiculous, given that it’s over 20 times the company’s sales.

“It’s a beautiful business, but the valuation will just be sky-high,” he said. “They’re going to have to deliver on all the amazing things that people think they might do in order to justify the valuation.”

Hayley Tsukayama covers consumer technology for The Washington Post.
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