Facebook Inc. business model is becoming more and more dependent on ad revenues as game revenues slide further. The social network site is now more dependent than ever on ad revenues – which continue to remain cyclical. This happens at a time when Google Inc. continues to find more revenue streams in both the hardware and software markets.
In the revenue report published on Wednesday, Facebook reported 98% of its quarterly revenue came from advertising. This has been a one percent increase from 97% a year earlier, and a massive 13% increase from 84% in 2012. The non-advertising revenue fell to US$175 million in the quarter, from US$181 million a year earlier.
Facebook Game Revenue Model
Facebook is having problems from some time about declining non-ad revenue for its business. The non-ad revenue consists mostly of video game players on desktop computers buying virtual currency. The core market for desktop games has seen a shift as consumer focus shifted to smartphones.
The heady days of Zynga (farmville) appear to be a thing of the past. The company maintained a 30% cut from all transactions on its platform.
Clement Thibault, a senior analyst at Investing.com talking about Facebook gaming revenue decline stated it isn’t a cause of concern. He opined:
“We have to remember it’s still a fairly young business. It’s not like they’re an old-fashioned business that needs to move soon.”
Facebook spokesperson declined to comment on the current situation.
Future Financial Outlook for Facebook
Facebook’s share price reached an all-time high of US$153.60 on Tuesday, before dipping to close at US$150.85 on Thursday. The company, unlike its competitors, has diversified in the similar market section. The strategy is in a direct contrast to that of Google who has successfully managed to penetrate both hardware and software markets. Google posted an increase of 3% in non-ad revenue from 10% to 13% when compared with last year.
In an estimate, eMarketer suggests that Facebook will generate $36.29 billion in net digital ad revenue in 2017. This is a whopping 35% up from last year. If the estimate comes true, that would translate into giving Facebook the second largest share of the global online ad market with 16.2%, behind Google’s 33%.
45% of Facebook ad revenue is expected to come from the US. Though Facebook doesn’t break out Instagram financials, the estimates made by eMarketer expect it to make $3.92 billion in global ad revenue, or 12.3% of Facebook’s ad revenue.
Sheryl Sandberg, COO Facebook in a conference call earlier, stated that company was diversifying revenue by expanding its geographical base. New advertisers across different industrial sectors and geographic regions would enable the company to target new revenue streams.