An Uptick in Facebook’s Payments Business

As we noted in February, Facebook recorded an increase in payments revenue in the fourth quarter of 2012; however, the increase in payments revenue was the result of deferred revenue recognition. In fact, when accounting for the $66 million in deferred revenue, Facebook’s payments revenue remained essentially unchanged over the year ago quarter. We concluded that Facebook’s payments business has remained flat for the past five quarters.

However, Facebook’s Q1 2013 earnings shows a slightly different picture for Facebook’s payments business. According to its 10-Q, Facebook earned $213 million in revenue from payments and other fees, a 15% increase from the year ago quarter. According to the company, the uptick in quarterly payments revenue is primarily the result of increased games revenue, and to a lesser extent revenue from Promoted Posts and Gifts.1

Facebook’s payments revenue from games increased by 12%; however, the company admitted that when accounting for deferred revenue recognition in the fourth quarter, the increase in payments revenue over the year ago quarter was closer to 6%. Despite a 37% decline in bookings from Zynga, Facebook’s largest games developer, the company still enjoyed a 60% increase in games-related payments volumes.

Facebook's payments business revenue by region

We can get a better sense of Facebook’s payments revenue increase by examining its regional distribution. Based on the data provided in Facebook’s quarterly presentation materials, almost all of the increase in Facebook’s payments revenue during the quarter accrued to the North American region, with a 20% year-over-year increase in revenue. By contrast, the company recorded only a 4% year-over-year increase in payments revenue in Europe.2

For the first time, Facebook also provided a geographical breakdown of average revenue per user (ARPU) for its payments business. In the first quarter, Facebook saw $0.65 per user in the North America region; $0.21 in Europe region; $0.07 in Asia region; and, $0.03 in rest of world region. Although the data only go back to Q1 2012, we can approximate regional ARPU to produce a more complete picture of Facebook’s payments business.

Facebook's payments business ARPU by region

Unsurprisingly, growth in ARPU for Facebook’s payments business in the first quarter is also primarily weighted to the North American region. We can see a 12% increase in payments ARPU in the region. In Europe and Asia regions, Facebook saw a modest decline. In rest of world region, Facebook’s revenue over the year ago quarter was flat. Overall, in the first quarter Facebook’s worldwide payments ARPU was $0.20.

We can see that the modest increase in Facebook’s payments business is the result of growth in North America, both in terms of payments revenue in the quarter and ARPU. Although Facebook’s advertising business remains its primary focus, the increase in revenue from mobile gaming despite Zynga’s decline is encouraging. Whether Facebook can sustain modest payments growth in North America, or grow in other regions, remains to be seen.

Sources

  1. Form 10-Q, Facebook Inc., 2013.
  2. Earnings Slides, Facebook Inc., 2013.