By Ingrid Lunden
Facebook (FB) is making a big effort to diversify its revenue generation into areas like payments around gaming and other services, but today the game is still ads-ads-ads, and it’s growing. In its Q2 earnings which have just come out, Facebook reported advertising revenue of $992 million. That works out to 84% of its total quarterly revenues of $1.18 billion.
Looking back to Facebook’s S-1 filing from before the IPO, that’s actually an increase as a percentage of revenues from last quarter, when ads made up 82% of revenues.
The company has gradually been working down its proportion of revenue from ads. Facebook said in that filing that in 2009, 2010, and 2011 and the first quarter of 2011 and 2012, advertising accounted for 98%, 95%, 85%, 87% and 82%, respectively, of its revenue.
But it may be that the growth of new formats like Sponsored Stories, both on desktop and mobile versions, have bumped that up again. Sponsored Stories, Facebook’s CEO Mark Zuckerberg says, generate $1 million a day from Sponsored Stories with more than half from mobile.
A recent report from TGB noted that Facebook’s CPMs are up by some 58% this quarter compared to last year, because of these new, more engaged (or some might say in your face) formats. Facebook noted that there is a “significant opporutnity to do more by increasing (new ad formats) such as Sponsored Stories on mobile.”
In the earnings call, COO Sheryl Sandberg noted that other efforts in advertising have included stronger demonstration of ROI for advertisers (more on that below); and making it easier for businesses to advertise on Facebook: that has included campaigns reaching out to particular segments like small and medium businesses, and the ability to turn timeline entries into advertising “with a few clicks.”
On the other hand, the rise in ad proportion could be down to the decline in payments revenues. Zynga’s results yesterday were a pointer that these could be in some trouble. The social gaming company, which reported revenues below analyst expectations, put the blame partly at the door of its social networking partner Facebook, claiming that Facebook was putting more emphasis on new games at the expense of older, more popular ones, in the news feed. If that really is the case, then maybe that will have spelled lower revenues. Will be interesting to see if Facebook comes back on that with their side of the story today. Facebook says that payments and other fees generated revenues of $192 million. “Gaming generally has been growing on mobile devices where our payment service does not work.”
Ads are not outpacing over revenue growth at the social network. Facebook noted were up by 28% on the same quarter last year. Revenues overall have grown by 32%.
Facebook noted in its earnings report that it has “independent ROI data” from more than 60 ad campaigns on the platform, which show that 70% of campaigns resulted in a return on ad spend of 3 times or better, and 49% of campaigns showed a return on ad spend of 5 times or better.
The company is also looking to develop more ad formats: Sandberg noted that Facebook is in an alpha stage test on real time bidding, a format that allows for more specific ad targeting and used more widely on the web. There is also the question of making more engaging “social” ads: fewer than half the ads on Facebook’s platform are social, the company said, and, despite how well they’re apparently doing, a very small part of ads on the site are Sponsored Stories.