Facebook (Meta) generates most of its revenue from selling advertising space
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Meta Platforms Inc. (META), the company that owns Facebook, primarily makes money by selling advertising space on its various social media platforms. Those platforms include websites and mobile applications that give users the ability to connect and communicate with family and friends. The company’s sites and apps include the social networking site Facebook, photo- and video-sharing app Instagram, and messaging apps Messenger and WhatsApp.
Meta also provides an ecosystem that allows users to connect through its Oculus virtual reality products. The company is starting to put increased focus on its augmented- and virtual reality products and services as part of its plan to build out the metaverse.
Meta 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), Amazon.com (AMZN), and Twitter Inc. (TWTR)
How Does Meta Make Money?
Some may still be asking “How does Facebook make money?” However, to be clear, the company goes by the name of Meta now and Facebook is one of its businesses.
How Facebook makes money is for the most part through digital advertising. Due to its enormous number of users and social media reach (its platforms and apps are free to users), advertisers large and small consider Meta a prime opportunity to present ads to viewers. Meta provides various ways for them to advertise, such as self-serve ads and targeted ads.
Marketers can target specific types of people based on different factors such as age, gender, location, interests, and behaviors. They buy ads that are placed on various Meta social media platforms and apps, including Facebook, Instagram, Messenger, and WhatsApp. Ads also appear on affiliated third-party applications and websites.
Ad prices are determined by an auction system based on bids and performance. Businesses are charged only for the number of clicks ads receive or the number of impressions (the number of times the ad is displayed).
A business that wants to run an advertisement sets a maximum budget and is charged a monthly billing based on the performance of the ad.
While advertising provides Meta with the majority of its revenue, it’s not the company’s sole income focus. In fact, by changing its name from Facebook to Meta Platforms, Meta signaled its plan to develop sources of revenue beyond advertising. Its Reality Labs is one such source.
Meta’s Businesses
Facebook
Facebook is a social media platform that helps people to connect, communicate, and share with friends and family. It also facilitates connections with others with common interests. Facebook features such as Groups, Watch and Marketplace can help users reach and make important new connections, as well.
Facebook makes money for Meta primarily through advertising.
Instagram
Instagram is a social media application that individuals and companies use to share photos and videos with friends, followers, and other users around the world. As with Facebook, Meta makes money from the advertising placed on Instagram. It’s appealing to advertisers because many users use the photo and video app to find and buy products.
Messenger and WhatsApp
Messenger is the instant messaging application used by Facebook and Instagram to connect users to friends, family, groups, and businesses. It’s required to direct message others on those platforms.
WhatsApp is a hugely popular messaging application that’s used by individuals and businesses worldwide. It’s simple, secure, and free (except for potential cell phone data allowance fees). Companies use it to communicate on various subjects with customers.
Both apps present Meta with monetization opportunities such as advertising and charging businesses for premium features that enhance customer support.
Reality Labs
Meta’s Reality Labs develops and offers Meta’s augmented- and virtual-reality hardware, software, and content. Augmented and virtual reality technologies are key to the company’s plan of building out the virtual world called the Metaverse.
Reality Labs makes the company’s Oculus virtual-reality headsets for consumers and offers a marketplace where people can purchase apps and games to use on the Oculus headsets.
Meta Portal is another component that offers dedicated devices for video calling. These products support consumers’ needs and desire to collaborate for business or simply to connect with friends and family.
Meta’s Financials
Meta posted a net income of $4.395 billion on $27.714 billion in total revenue for the third quarter (Q3) of its 2022 fiscal year (FY), the three-month period ending Sep. 30, 2022. Approximately 98% ($27.237/$27.714) of the quarter’s total revenue was advertising revenue. The remaining revenue contributors were the company’s Reality Labs segment and other sources.
Revenue dropped 4% year over year (YOY) in Q3 FY 2022. Meta’s total operating income, used as a profit metric for its business segments, was $5.664 billion, down about 45% compared with the year-ago quarter.
Meta’s Business Segments’ Financials
As of Q4 FY 2021, Meta started breaking down its financial results into the following two segments: Family of Apps (FoA), which includes the company’s main social media platform, Facebook, as well as Instagram, Messenger, WhatsApp, and other services; and Reality Labs (RL), which includes the company’s augmented- and virtual-reality products and services. Meta reports revenue and operating income for both of these segments.
Before this change, the company only provided a breakdown of revenue for Advertising and Other revenue. It still provides this breakdown under the umbrella of the FoA segment.
Family of Apps (FoA)
The Family of Apps (FoA) segment captures all of the revenue that Meta generates from selling advertising to marketers, which comprises nearly all of the company’s total revenue.
As mentioned previously, ads are displayed on Meta’s main social networking site, Facebook, as well as Instagram, Messenger, WhatsApp, and other third-party affiliated websites or mobile applications.
The FoA segment posted $27.429 billion in revenue in Q3 FY 2022, comprising almost 99% of the company’s total revenue. Revenue for the segment was down by approximately 3.6% compared with the year-ago quarter’s revenue of $28.452 billion. The segment posted $9.336 billion in operating income, comprising all of the company’s operating income for the quarter. Operating income fell 28% YOY.
Reality Labs
The Reality Labs segment reported revenue of $285 million in Q3 FY 2022, accounting for about 1% of company revenue. Revenue for the segment decreased by almost 49% compared with the year-ago quarter.
The segment reported an operating loss of $3.67 billion, thus reducing the company’s overall operating income. The operating loss was significantly larger than the operating loss of $2.63 billion that the segment reported in the year-ago quarter.
Meta’s Recent Developments
On Feb. 2, 2022, Meta, in a slide presentation of its results for Q4 FY 2021, indicated that its daily active users (DAUs) declined slightly compared with the previous quarter. It marked the first time in company history that DAUs had fallen.
Meta also provided revenue guidance in its Q3 2022 earnings press release. The company projected that its revenue for Q4 2022 would be in the range of $30 to $32.5 billion. It is projected that total expenses for all of 2022 will be in the range of $85 to $87 billion. For 2023, total expenses are estimated at $96 to $101 billion. Reality Lab expenses (which Meta included in the range above) should grow significantly in 2023.
How Meta Reports Diversity and 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 Meta and its commitment to diversity, inclusiveness, and social responsibility. We examined the data that Meta reports on 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 Meta discloses its data about the diversity of its board of directors, C-Suite, general management, and employees overall (a ✔ indicates where it does). It also shows whether Meta breaks down those reports to reveal the diversity of itself by race, gender, ability, veteran status, and LGBTQ+ identity.
How Does Meta Make Money From Ads?
Meta, formerly known as Facebook, primarily earns revenues by selling advertising space on its social media platforms, such as Facebook and Instagram. The cost of advertising varies and is based on an ad auction system. Marketers set a budget for advertising and Meta counters with how many impressions the company can get for their proposed budget.
Meta also makes money by selling virtual-reality hardware and software as well as social media subscriptions. Although users can access Meta social media platforms at no cost, some may subscribe to exclusive features for a fee.
How Much Money Does Meta Make Per Day?
Meta reported total revenues for 2021 as $117.929 billion, which equates to approximately $323.09 million earned per day ($117.929 billion/365 days).
How Much Does Facebook Make Per User?
Meta reported Facebook and Messenger’s annual revenue per user (ARPU) as $40.96 for 2021. In other words, it earned $40.96 per user in 2021. Also reported was Facebook’s daily active users (DAU), approximately 1.93 billion as of December 31, 2021.
The Bottom Line
Meta, the parent company to flagship brand and former namesake Facebook, reported third-quarter 2022 revenues of $27.714 billion, with approximately 98% derived from advertising.
It reports revenues for its Family of Apps (FoA) segment—which accounts for advertising dollars from its social media sites—plus the augmented and virtual reality Reality Labs (RL) segment and other sources. Meta looks to Reality Labs to build out its virtual universe (the metaverse) and provide sources of income in addition to advertising.
Meta expects fourth-quarter 2022 revenue in the range of $30 to $32.5 billion and total expenses for the entire year of $85 to $87 billion.