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.
Can Facebook grow its payments business? Facebook has the opportunity to demand revenue-share from non-game apps on its desktop platform; however, as Mark Zuckerberg noted on the call, Facebook’s cut would likely be below 30 percent (the fee demanded by Apple). Alternatively, it will also be interesting to see whether Facebook can grow payments revenue in Asia and rest of world regions, where most of its user base accesses the site from Facebook’s mobile (non-smartphone) platform.