Surrounding all the hype about Facebook’s upcoming IPO is the social network’s projected market value of $60-100 billion.
What is the basis of such a valuation? Simply put, it is the revenues and profits that Facebook generates.
In 2011 Facebook generated $3.8 billion in revenues and $1 billion in profits. Those are staggering numbers for a company that is less than ten years old.
To help put those numbers in perspective, consider the Philippines’ three biggest firms according the 2011 list compiled by Forbes magazine:
San Miguel Corporation - $5.5 billion sales, $445 million profit, $8.7 billion market value.
Meralco – $5.5 billion sales, $215 million profit, $5.9 billion market value.
PLDT – $3.2 billion sales, $893 million profit, $9.4 billion market value.
We all know what those three companies do. But where do all of Facebook’s revenues and profits come from?
Although its profit breakdown was not released, Facebook derived most of its revenues, about 85% or approximately $3.2 billion, from advertising. The other sources of revenue according to a CNN report are Facebook Credits (the company gets 30% of purchases within apps and games) and from games like Farmville.
With over 800 million users, it’s easy to see how valuable Facebook’s ad business is. And it will likely just grow even bigger.
According to an eMarketer report, global online advertising expenditure for 2011 was expected to have grown by 17% to about $80 billion out of a total $497 billion advertising expenditure. The same report projects total global advertising will hit $600 billion by 2015.