Facebook's (NASDAQ: FB) revenue was $40.6 billion in 2017, up from $27.6 billion a year earlier. The company that was once mocked as having had the worst initial public offering (IPO) ever is dominating with worldwide growth in social media and making money while doing it. The company does not break down revenue by business segment, but it is possible to draw conclusions about the company's most profitable business segments.
Facebook Mobile Advertising
As the use of smartphones and tablets continues to grow, so does the importance of mobile advertising. Out of the company's $40.6 billion in revenue, $39.9 billion came from advertising, and 88% of that was from mobile.
Facebook's app-based approach meshes with the preference of millennials, and it also helps to keep users on the site even as they explore videos and news articles.
Facebook's rich user metrics incorporate members' profiles and the universe of pages that they like. This information, combined with the long amounts of time that people spend logged onto the site, increases the price that the company can charge to advertisers relative to competitors such as Google and Twitter. As the proliferation of smartphones and tablets spreads, especially in underserved areas such as India and Africa, the value of mobile app-based advertising will continue to grow, and Facebook is well-positioned to ride that trend to continued success.
Facebook bought Instagram for $1 billion right before going public in April 2012. The photo-sharing app has over a billion monthly users, up massively from 30 million at the time of the acquisition, and dwarfing Twitter's user number. Facebook has always had a photo-sharing aspect, but adding Instagram gave it an app presence that it had lacked, as well as an enthusiastic and dedicated base of users.
Facebook does not report separate revenue numbers for Instagram, but eMarketer estimates that it will bring in $5.5 billion in 2018. The firm also thinks Instagram can account for 16% of Facebook's total revenue over the next year.
The U.S. is Instagram's biggest market, where it has over 110 million users. Current trends suggest that the number of U.S. users could grow to over 130 million by 2022. Still, over 80% of Instagram users are outside the U.S.
WhatsApp is the world's largest mobile messaging app. It works across multiple platforms, functioning as a text messaging service without the related cost. It avoids both traditional SMS text charges and internet data fees, and the low cost makes it particularly attractive to people who communicate internationally. It is extremely popular in developing markets as it's free to use.
WhatsApp allows users to create groups and to send audio and video messages. The service has over 1.5 billion monthly users. Seventy percent of WhatsApp members are on it every day. Facebook's proprietary Messenger app is also one of the world's largest messaging service.
Facebook bought WhatsApp for $21.8 billion in February 2014. At the time, the company had an estimated $10.2 million of annual revenue and no advertising, but it is widely considered to be Facebook's best acquisition to date. With telephone calls being gradually replaced by text messaging and related services, keeping the app away from Google was far more important that the price of the purchase. Facebook plans on putting ads on WhatsApp in 2019, which could further drive mobile ad revenues.
WhatsApp is also still enormously popular in developing markets where Facebook has a minimal presence. The acquisition gives Facebook access to these potential users, setting up tremendous long-term profit potential.