Investing News

How Facebook (Meta) Makes Money: Advertising, Payments, and Other Fees

NEWS ALERT February 3, 2022, 10:13 a.m. EST: Meta stock plunged 25% Thursday morning after the social media giant reported disappointing 2021 earnings and forecast revenue growth next quarter would fall short of analyst expectations. The company also reported its first-ever decline in daily active users on its Facebook app.

Meta Platforms Inc. (FB), 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 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. 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.

On Oct. 28, 2021, Facebook Inc. changed its name to Meta. It plans to change its ticker from FB to META in the first half of 2022.

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), (AMZN), and Twitter Inc. (TWTR).

Key Takeaways

  • Meta sells ads on social media websites and mobile applications and also sells augmented and virtual reality related products and services.
  • Ad sales are the primary source of Meta’s revenue.
  • Meta’s main social media platform Facebook reported that it lost daily active users in Q4 FY 2021, marking the first time in the company’s history that the number of daily active users has fallen.

Meta’s Financials

Meta posted a net income of $10.3 billion on $33.7 billion in total revenue for a net profit margin of 30.5% in Q4 of its 2021 fiscal year (FY), the three-month period ended Dec. 31, 2021. As much as 97% or $32.8 billion was advertising revenue. The other 3% was generated by the company’s new Reality Labs segment (discussed in detail below) as well as other sources.

Revenue grew 19.9% year over year (YOY) in Q4 FY 2021, decelerating from the 35.1% YOY pace of growth in the previous quarter, Q3 FY 2021. Net income fell 8.3% YOY in the fourth quarter, compared to a rise of 17.2% YOY in the previous quarter. Meta’s total operating income, which is used as a profit metric for its individual business segments, was $12.6 billion, down 1.5% compared to the year-ago quarter.

Meta’s Business Segments

As of Q4 FY 2021, Meta now breaks 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 related products and services. Meta reports revenue and operating income for both of these segments. Prior to 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 Family of Apps segment.

Family of Apps

The Family of Apps segment captures all of the revenue Meta generates from selling advertising to marketers, which comprises nearly all of the company’s total revenue. Ads are displayed on Meta’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.

The Family of Apps segment posted $32.8 billion in revenue in Q4 FY 2021, comprising over 97% of the company’s total revenue. Revenue for the segment was up 19.9% compared to the year-ago quarter. The segment posted $15.9 billion in operating income, comprising all of the company’s operating income for the quarter. Operating income rose 6.8% YOY.

Reality Labs

The Reality Labs segment is comprised of Meta’s augmented and virtual reality related hardware, software, and content. Augmented and virtual reality are technologies that are key to the company’s plan of building out the virtual world called the metaverse. This segment includes the company’s Oculus virtual-reality headset.

The Reality Labs segment reported revenue of $877 million in Q4 FY 2021, accounting for about 3% of companywide revenue. Revenue was for the segment increased 22.3% compared to the year-ago quarter. The segment reported an operating loss of $3.3 billion in the fourth quarter, thus reducing the company’s overall operating income. The operating loss was significantly larger than the operating loss of $2.1 billion 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 the fourth quarter, indicated that its daily active users (DAUs) declined slightly compared to the previous quarter. It marked the first time in the company’s history that DAUs have fallen.

Meta also provided revenue guidance in its Q4 earnings press release. The company projected that its revenue for Q1 FY 2022 would be in the range of $27-29 billion. While that represents between 3-11% year-over-year growth, it also represents a decline from fourth quarter revenue of $33.7 billion. The company said that its first quarter results would be impacted by several headwinds, including changes made by Apple to its iOS early last year that force apps to obtain permission from iPhone users before they are allowed to track those users for the purpose of offering targeted advertisements. Many users have since chosen to not be tracked, causing a number of advertisers to cut spending on advertising on social media platforms like Facebook.

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 Meta 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 Meta 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 Meta breaks down those reports to reveal the diversity of itself by race, gender, ability, veteran status, and LGBTQ+ identity.

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

Articles You May Like

Thoma Bravo-backed workplace software firms merge as shift to hybrid work creates new opportunities
237 TIP. Value Investing Legend Sanjay Bakshi
Why Oct. 7 Is the Next Big Event for Mullen Stock
Setting Our Sights for 2023
Op-ed: The fourth quarter begins, and here is what the 2022 bear market has taught us