Business

Report: Facebook Numbers Exceed Expectations Ahead of IPO

Facebook earnings are growing faster than previously expected, and are on track to exceed US$2 billion this year, according to a Wall Street Journal report.

While Facebook officially says little about its revenue, its most visible revenue-generating sources are advertising and the cut its gets from the sale of virtual goods using its Credits currency. The largest chunk, by far, comes from advertising. In 2009, over 85 percent of Facebook's revenue came from advertising, according to an estimate by Business Insider.

Facebook advertising has seen a tremendous momentum throughout the last several quarters, and demand is soaring, according to a report from Efficient Frontier, a company that helps make digital ad campaigns more efficient. Today, advertisers want "to take advantage of the full capabilities in the Facebook Marketplace to engage with their fans and promote their brands," Efficient Frontier said. That helped increase the cost per click by 40 percent in the first quarter of the year, compared to the last three months of 2010.

Increased demand and higher costs for its advertising is good news for Facebook's bottom line. The company is now on track to exceed $2 billion in earnings before interest, taxes, depreciation and amortization in 2011, according to The Wall Street Journal. That is above the numbers from Facebook that circulated several months ago when Goldman Sachs Group and Russian investment firm Digital Sky Technologies invested in the company, it wrote.

The company is also laying the groundwork to further boost its revenue. Last week, Facebook launched the Deals on Facebook service in Atlanta, Austin, Dallas, San Diego and San Francisco. The service allows users to find discounts on local activities. Also, starting July 1, Facebook will require all social game developers on the Canvas platform to process payments through Credits, from which the company gets a 30 percent cut.

Revenue and sales growth will be key metrics when the company eventually decides to go public, an event that may take place as early as spring of next year, according to The Wall Street Journal. The lack of financial information from Facebook has led to great speculation about the company's value. However, people with insights into the company's recent finances said they thought Facebook was growing at a pace that justifies a valuation of $100 billion or more when it goes public, according to The Wall Street Journal.

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