Facebook Inc. (FB) primarily makes money by selling advertising space on its various social media platforms. Those platforms include websites and mobile applications that allow users the ability to connect and communicate with family and friends. The company's sites and apps include social networking site Facebook, photo- and video-sharing app Instagram, and messaging apps Messenger and WhatsApp. Facebook also provides an ecosystem that allows users to connect through its Oculus virtual reality products.

Facebook competes with other companies that sell advertising to marketers, as well as companies that provide platforms for communicating and sharing content among users’ various social networks. Major competitors include Apple Inc. (AAPL), Alphabet Inc.’s (GOOGL) Google and YouTube, Tencent Music Entertainment Group (TME), and Amazon.com (AMZN).

Key Takeaways

  • Facebook sells ads on social media websites and mobile applications.
  • Ad sales are the primary source of Facebook's revenue.
  • Facebook is experiencing increasing demand for advertising amid an acceleration of the shift to online commerce spurred on by the COVID-19 pandemic.
  • More than 1,000 groups and companies staged an advertising boycott of Facebook in July.
  • Facebook is facing an antitrust investigation by the Federal Trade Commission. No decision has yet been made by the commission to file a lawsuit.

Facebook's Financials

Facebook posted a net income of $7.8 billion on $21.5 billion in total revenue for a net profit margin of 36.5% in Q3 2020, which ended September 30, 2020. As much as 43% or $9.2 billion in revenue came from the U.S. and Canada. The other 57% came from other regions across the globe.

Revenue grew 21.6% in Q3 2020 compared to the same three-month period a year ago. It marked a significant deceleration from the year-over-year (YOY) revenue growth of 28.6% posted in Q3 2019. Despite the deceleration, Facebook noted that it experienced increasing demand for advertising, a development the company believes is due to an acceleration of commerce from offline to online amid the COVID-19 pandemic. Net income grew 28.8% in Q3 2020 compared to the same quarter a year ago.

Facebook breaks down its revenue into two separate segments: Advertising and Other revenue. The company does not do a separate breakdown for net income.

Facebook's Business Segments

Facebook breaks down its revenue, but not income, into two main segments, as outlined here.

Advertising

Facebook generates substantially all of its revenue from selling advertising to marketers. Ads are displayed on Facebook's main social-networking site, as well as Instagram, Messenger, and other third-party affiliated websites or mobile applications. Marketers pay for ads based on the number of impressions delivered or the number of actions, such as clicks, undertaken by users.

Facebook posted $21.2 billion in advertising revenue in Q3 2020, comprising 99% of the company's total revenue. Ad revenue grew by 22.1% in Q3 compared to the same three-month period a year ago.

Other revenue

Revenue from this segment is generated through the delivery of consumer hardware devices and net fees Facebook receives from developers using its payments infrastructure, as well as from various other sources.

Facebook posted $249 million in other revenue in Q3 2020, representing the remaining 1% of total revenue for the quarter. Revenue for the segment fell 7.4% compared to the year-ago quarter.

Facebook's Recent Developments

Facebook was once again forced to defend its reputation this summer as more than 1,000 groups and companies took part in an advertising boycott of Facebook during the month of July. The goal of the boycott was to pressure the social networking giant to do a better job of stopping the spread of hate speech and misinformation on its platforms. Some major corporations that took part in the boycott included Coca-Cola Co. (KO), CVS Health Corp. (CVS), and Verizon Communications Inc. (VZ).

The boycott is just the most recent public backlash the company has faced in the past several years. In April 2017, the company issued a case study confirming that several groups had attempted to use its social-networking site to influence the 2016 presidential election. In March 2018, news broke that political consulting firm Cambridge Analytica had illegitimately accessed millions of users' data and used the data to influence voters to support presidential candidate Donald Trump during his campaign.

Facebook is also still under investigation by the FTC for possible anticompetitive practices. A big focus of the FTC's antitrust investigation is whether Facebook has engaged in a strategy of buying up potential rivals in order to limit potential future competitive threats to its business. No decision has yet been made by the FTC on whether it will file a lawsuit case against Facebook. However, people familiar with the matter said the commission was nearing a decision.

Important

On October 6, 2020, after a 16-month investigation into the business practices of tech behemoths Apple, Amazon, Facebook and Alphabet, the House Judiciary subcommittee on antitrust released its recommendations on how to reform laws to avoid the continued emergence of digital monopolies. The Democratic-majority staff presented a nearly 450-page report concluding that the four Big Tech companies dominate the industry in ways that affect the U.S. economy and democracy, suggesting Congress implement changes to antitrust laws that could result in parts of the businesses being separated.

How Facebook Reports Diversity & Inclusiveness

As part of our effort to improve the awareness of the importance of diversity in companies, we offer investors a glimpse into the transparency of Facebook and its commitment to diversity, inclusiveness, and social responsibility. We examined the data Facebook releases to show you how it reports the diversity of its board and workforce to help readers make educated purchasing and investing decisions.

Below is a table of potential diversity measurements. It shows whether Facebook discloses its data about the diversity of its board of directors, C-Suite, general management, and employees overall, as is marked with a ✔. It also shows whether Facebook breaks down those reports to reveal the diversity of itself by race, gender, ability, veteran status, and LGBTQ+ identity.

Facebook Diversity & Inclusiveness Reporting
  Race Gender Ability Veteran Status Sexual Orientation
Board of Directors          
C-Suite
 
       
General Management ✔ (U.S. Only)      
Employees ✔ (U.S. Only)