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's business has been impacted by the COVID-19 pandemic and faces heightened uncertainty in its business outlook.
  • 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.

Facebook's Financials

Facebook posted a net income of $5.2 billion on $18.7 billion in total revenue for a net profit margin of 27.7% in Q2 2020, which ended June 30, 2020. As much as 44.4% or $8.3 billion in revenue came from the U.S. and Canada. The other 55.6% came from other regions across the globe.

Revenue grew 10.7% in Q2 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 27.5% posted in Q2 2019. Facebook said that its business was being impacted by the COVID-19 pandemic and expected to face continued macroeconomic uncertainty.

Net income, however, grew 97.9% in Q2 compared to the same quarter a year ago. But that growth was inflated by an abnormally bad second quarter in 2019, in which net income fell 48.8%. During that quarter, Facebook had to pay out $2.0 billion in legal expenses related to the U.S. Federal Trade Commission (FTC) settlement over data privacy issues, and also incurred a $1.1 billion one-time tax expense. Compared to Q2 2018, Facebook's net income in Q2 2020 is only up 1.4%.

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 $18.3 billion in advertising revenue in Q2 2020, comprising 98% of the company's total revenue. Ad revenue grew by 10.2% in Q2 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 $366 million in other revenue in Q2 2020, representing the remaining 2% of total revenue for the quarter. Revenue for the segment grew by 39.7% compared to the year-ago quarter.

Facebook's Recent Developments

Facebook was once gain 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.

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)