How Have Industry Headwinds Affected Facebook’s Revenues?

by Trefis Team
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Trefis estimates Facebook’s (NASDAQ:FB) top line to increase by just over 20% in 2019 – down from over 37% in 2018. While revenues for the technology giant are expected to trend lower given the sheer size of its top line (which was just shy of $56 billion in 2018), we believe that concerns raised in the wake of the Cambridge Analytica privacy scandal, the implementation of GDPR and several high-profile investigations into the company’s business have weighed on its growth over recent quarters.

We highlight trends in Facebook’s Revenues over the years along with our forecast for full-year 2019 in an interactive dashboard. Notably, Facebook’s Advertising business is expected to contribute $66.5 billion to Facebook’s 2019 revenues, making up 99% of Facebook’s $67.3 billion in expected revenues for the year. Facebook’s other revenue stream – Payments and Other Fees – contributes a fraction of its top line, and nearly all of the expected $39.6 billion in revenue growth for the company between 2016 and 2019 can be attributed to its Advertising segment. This strong revenue growth has been key to Facebook’s share price doubling since 2016, even as margins trended higher. We discuss Facebook’s valuation analysis in full, separately.

Below we discuss Facebook’s business model, followed by sections that review of past performance and 2019 expectations for Facebook’s revenue drivers and competitive comparisons of its Advertising revenue with Google and Twitter.

 

Facebook’s Business Model

What does Facebook offer:

  • The company builds products that enable people to connect and share with friends and family through mobile devices, personal computers, and other surfaces. The products also help people discover and learn about what is going on in the world around them, enable people to share their opinions, ideas, photos and videos, and other activities with audiences ranging from their closest friends to the public at large, and stay connected everywhere by accessing these products.
  • The products are Facebook, Instagram, Whatsapp, Messenger and Oculus. The company earns its major revenue from selling advertising placements to marketers.

Has 2 Revenue Streams:

  • Advertising: Advertising revenues are primarily generated by displaying ads on Facebook, Instagram, Messenger, and third-party affiliated websites or mobile applications.
  • Payment & Other Fees: Payments revenue comprises the net fee received from developers using the Payments infrastructure. Other fees includes revenues from the delivery of consumer hardware devices, as well as revenue from various other sources..

Has 5 Major Products:

  • Facebook: Facebook enables people to connect, share, discover, and communicate with each other on mobile devices and personal computers. There are a number of different ways to engage with people on Facebook, including News Feed which displays an algorithmically-ranked series of stories and advertisements individualized for each person.
  • Instagram: Instagram is a community for sharing photos, videos, and messages, and enables people to discover interests that they care about.
  • Messenger: Messenger is a messaging application for people to connect with friends, family, groups and businesses across platforms and devices.
  • WhatsApp: WhatsApp is a messaging application that is used by people and businesses to communicate in a private way.
  • Oculus: Oculus is a hardware, software, and developer ecosystem that allows people to come together and connect with each other through Oculus virtual reality (VR) products.

What Are The Alternatives?

  • Major competitors are Apple, Google, Amazon, Tencent and Twitter.

What Is The Basis of Competition?

  • The industry is characterized by innovation, rapid change, and disruptive technologies. They compete with companies that sell advertising, social media and communication products, content facilitators, video distributors and other forms of media content, and companies that provide development platforms for applications developers. For how its revenue compares to its peers please visit our interactive dashboard detailing Facebook’s Revenues.

Revenue growth expected in 2019 is primarily from growth in the Advertising segment.

  • Total Revenue has grown at a very high pace from $27.6 billion in 2016 to $55.8 billion in 2018 pushed by Advertising Revenue. Trefis estimates further growth of about 20.5% in 2019 – helping the top line reach $67.3 billion.
  • Advertising Revenue has seen a high revenue growth over the years. Revenue grew from $26.9 billion in 2016 to $55 billion in 2018. Trefis estimates further growth of about 20.9% for the year, to settle at $66.5 billion.
  • Payments & Other Fees have been fluctuating over the years. It fell from $753 million in 2016 to $711 million in 2017 but increased to $825 million in 2018. Trefis estimates these revenues to be around $809 million in 2019.
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