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The Stagnation of Facebook’s Payments Business

While Facebook’s core business is advertising, the company’s payments business now comprises about 21% of its total revenue. In Q1 2011, Facebook saw $94 million in revenue from its payments business. By Q1 2012, revenue had increased to $186 million. However, Facebook’s payments business revenue has barely increased. During the second quarter of 2012, Facebook’s payments revenue barely increased to $192 million.1

Earlier, I discussed how it was important for Facebook to grow its payments business to a larger portion of its overall business. While Facebook’s primary business is advertising, the company will have difficulty generating advertising revenue for two reasons: mobile advertising revenue is less certain, and Facebook’s highest growth regions are its least profitable. Therefore, having an alternative revenue stream could be important for the company moving forward.

However, Facebook also faces challenges in growing its payments business for the same reasons that its advertising business is at risk: smartphone adoption. As Facebook’s CFO David Ebersman said on the company’s earnings call, mobile growth (understood to mean smartphone adoption growth) is responsible for a decline in the company’s payments revenue.2 This is because iOS and Android, the main smartphone platforms, do not deliver any payments revenue to Facebook.

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An Update on Facebook’s User Base

During its inaugural earnings call, Facebook released new data about its user base. The company saw modest overal growth in monthly and daily active user growth during Q1 and Q2 2012, the company revealed more details about the regional breakdown of its active user base, and mobile active users swelled to a higher percentage of its total user base.1

The quarterly reports also validated my prediction that Facebook’s monthly and daily active user growth in North America was reaching a plateau. The data provided by Facebook illustrates that this has occurred. Whether it will significantly affect revenue growth is less clear, since Facebook continues to innovate its advertising offerings.

In its earnings releases, Facebook provided user base data for the previous two fiscal quarters. The company reported 901 million monthly active users in Q1 2012, an increase of 32.5% from the year ago quarter. In Q2, 2012, Facebook’s monthly active users swelled to 955M, a 29% increase from Q2 2011. The company appears on track to cross the 1 billion active user mark by the end of 2012.

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Continuance - Facebook Analysis by . @jonmilani. Copyright © 2020. All rights reserved. Hosted by (mt) Media Temple.