Photo: Facebook Roadshow
This is wonky, but it might be interesting for those who are trying to figure out how much revenue Facebook can generate over the next couple of years.Facebook’s revenue comes from two sources:
Ads comprise the majority of Facebook’s revenue–82% in Q1.
But Payments revenue is growing much faster than Ads: 98% in Q1, versus only 37% for ads.
Analysts expect Payments revenue growth to keep charging along. A couple of early analyst models I’ve looked at project Payments growth of ~75% this year, which would nearly double the size of the business to $1 billion.
But that might be tough.
- Part of the strong growth of Payments revenue has come from the requirement that all of Facebook’s games partners start using Facebook Payments on July 1 last year. That requirement presumably contributed to the rapid growth of Payments revenue over the last three quarters. It will soon anniversary.
- Payments revenue declined sequentially in Q1 after rising sharply in Q1 last year–so the decline wasn’t the result of seasonality. This suggests that the organic growth drivers of Payments revenue may be flattening. See numbers below.
- Zynga accounts for almost all of Facebook’s payments revenue, and Zynga’s stock is cratering. Falling stock prices often indicate weakness in the business.
I played around with a rudimentary model (below) and came up with a 2012 Payments growth rate that is about half of that projected by the early Wall Street estimates that I looked at.
If Payments growth slows sharply, this won’t clobber Facebook’s growth for the year–the Payments revenue stream is still relatively small. But Ad growth is slowing rapidly, and 30% growth by the end of the year (as projected below) may end up being a stretch.
Photo: Business Insider
For context, when Facebook told its underwriter analysts to cut their estimates two weeks ago, just before the IPO, the new 2012 revenue estimate the company was aiming for was $4.8 billion. The model above puts the company just north of that, at $4.9 billion.
Here’s a link to the spreadsheet, if you want to look at it in more detail.
It includes 4 sections:
- My aggressive 5-year earnings estimates
- My “likely” 5-year earnings estimates
- Wall Street’s current estimates (provided by the company)
- Quarterly breakdown of revenue through 2012
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