Insider Intelligence latest news, announcements, and media resources.

eMarketer Reduces Estimates for Facebook Revenues

Most research sources lower guidance as marketers continue to question ad effectiveness

NEW YORK, NY (August 30, 2012)—Revenues at Facebook will not fly as high this year as earlier estimated, according to a new forecast by eMarketer. But growth is still relatively strong at Facebook, and eMarketer predicts revenues for the company will reach $6.6 billion in 2013.

Total revenues at Facebook will just break the $5-billion mark this year, an increase of 35.9% over 2011, according to the new forecast. In 2013, revenue is expected to increase 31% as Facebook fully rolls out new ad products such as its ad exchange. International revenue is also expected to climb with the expansion of the company’s mobile ad business.

Revenues from Facebook Payments and other sources are rising more quickly than ad revenues, but from a much smaller base. This year the social networking site will take in $811 million from sources other than advertising, which represents an increase of 45.6% over last year.

In February, eMarketer predicted that Facebook’s total revenues would surpass $6 billion this year, but after the company underperformed market expectations in both Q1 and Q2, eMarketer’s forecast—an analysis of hundreds of data sets on Facebook ad revenues, impressions, usage and other factors collected from dozens of third-party sources—has been revised downward.

The revision downward does not reflect concerns about Facebook’s mobile advertising business. While the February forecast included the assumption that Facebook would start to sell mobile advertising this year, eMarketer did not expect that it would become a meaningful contributor to revenue in 2012.

The new forecast lowers expectations for Facebook revenues by more than $1 billion for the year, following a trend evident from most other firms that have looked closely at Facebook’s revenues over the past year.

Ad revenues at the social networking giant will continue to rise this year, though at a significantly lower rate than in the past. Revenues will reach $4.23 billion, up 34.1% over 2011, and eMarketer predicts revenue increases in the double digits to continue through 2014, when Facebook’s worldwide ad revenues will reach $6.81 billion. Earlier this year, eMarketer predicted ad revenues at Facebook would reach $5 billion this year, but underperformance throughout the first half of 2012, along with questions about the effectiveness of some of the site’s ad products, have led to the downward revision.

Paid advertising accounts for the vast majority of Facebook’s total revenue, though its share has been dropping over the past several years. As recently as 2009, advertising accounted for 98% of the company’s intake; this year that percentage will fall to 83.9%.

“Major marketers are still questioning the effectiveness of advertising on Facebook, and they are concerned that their ability to measure results is underdeveloped,” said eMarketer analyst Debra Aho Williamson. “Facebook is working on addressing these concerns, but it must move even more quickly.”

One answer to this problem may already be within Facebook’s control. eMarketer believes the technology underlying the Facebook Marketplace automated ad-buying platform is robust and will continue to support higher levels of spending. The infrastructure supporting these ads, which typically appear on the right side of the page, is efficient and effective, according to eMarketer’s analysis of the system earlier this year, and eMarketer believes that as Facebook rolls out similar automation to its Premium ad offerings, such as Sponsored Stories and other newsfeed ads, those ads will perform better.

eMarketer bases its estimates of advertising and other revenues at Facebook on the analysis of reported revenues from Facebook company releases; estimates from other research firms; Facebook usage trends; and eMarketer interviews with executives at ad agencies, brands, online ad publishers and other industry leaders.

About eMarketer
eMarketer is the authority on digital marketing, media and commerce, offering insights essential to navigating the changing, competitive and complex digital environment. By weighing and analyzing information from different sources, eMarketer provides businesspeople, marketers and advertisers with the most complete view of digital marketing available.

Media Contact:
Clark Fredricksen
Vice President, Communications, eMarketer
Tel. 212-763-6056

Posted on September 4, 2012.