Facebook has milked profits by stitching an online social fabric for interaction. That fabric consists of an ecosystem of products, from Instagram to WhatsApp to Facebook Messenger, which boast substantial popularity and user numbers. It is no wonder then that Facebook beat analyst expectations in the first quarter by reporting revenue of $8.03 billion on earnings per share of $1.04. Those figures represent a sterling achievement for a company that did not even exist less than 15 years ago.
So Where Does Facebook Get All That Money?
The bulk of Facebook’s revenue comes from digital advertisements, which brought in $7.9 billion last quarter. Along with Alphabet Inc. (GOOG) subsidiary Google, Facebook has emerged as one-half of a dominant duo in digital advertising. Unlike its rival, which enables advertisers to serve up ads based on keyword searches, Facebook’s value proposition is targeted advertising.
Advertisers can use the wealth of personal data about users from Facebook’s product ecosystem for ads. For its part, the Menlo Park, Calif.-based company claims that it makes the data anonymous and serves the information to advertisers in custom demographic buckets. Advertisers can further slice and dice the buckets based on their branding goals.
For example, advertisers can serve up custom ads to Facebook users from specific income groups or regions. They can also target users based on other categories, such as sexual orientation, religion or political affiliation. Facebook has developed a broad variety of ad products for different stages of the branding lifecycle.
The company is preparing for the future by broadening its revenue canvas. It has emphasized videos and live broadcasts from its Facebook Live platform in its earnings calls in recent quarters. According to the company, the daily watch time for Facebook Live broadcasts has grown by more than four times in the past year. The social media giant has also inked deals with content creators to further promote video.
Facebook has also invested in emerging technology trends for future growth. “Over the next 10 years, we are developing consumer use cases around technology that are a big part of our future but won’t be a big part of our business for a long time,” Zuckerberg said during the social network’s first quarter earnings call. Included among these use cases is virtual reality and bringing internet to parts of the world without connectivity. Again, these initiatives translate into future sources of revenue for Facebook, as more internet connections translate to greater usage and revenue.