Facebook performance ahead of IPO 'reassuring'

Peter Dinham
Thursday, 02 February 2012 18:22

IT Industry - Market

Analysts say it is reassuring that Facebook has been able to convert its 845 million active users into revenue and profits, with both the company's operating income and revenue growing strongly over the past two years.

In the wake of the announcement of Facebook's long-awaited IPO, and disclosure of its financial position, analyst firm Ovum says that on two of the most important metrics - revenue growth and profitability - the company is doing very well.

According to Jan Dawson, Ovum Chief Telecoms Analyst, when many web 2.0 and social networking start-ups still have a reputation for focusing exclusively on user growth, 'it's reassuring that Facebook appears to have been able to convert its 845 million active users into both revenue and profit.'

As report by media around the world, Facebook has revealed that it now has 845 million users, nearly half the world's Internet users, and reports it achieved profits of $1 billion in profit on $3.7 billion in revenue last year.

 

However, as reported by iTWire, Ovum is still cautioning about the likely negative impact on Facebook from moves by Google for a greater share of the social network market.

In its latest report, Ovum says that like Google, Facebook derives the vast majority of its revenue from advertising, although it acknowledges that it is diversifying somewhat, but still stresses its vulnerability both to the fortunes of the overall advertising market, and to major moves from Google in particular.

'As Google seeks to ramp up Google+, it will eat into Facebook's share of the social networking market and with it Facebook's share of related advertising. In addition, since much of Facebook's revenue comes from gaming apps, as Google expands the gaming platform it is building with Google+, it threatens to dilute Facebook's relationships with Zynga, which accounts for 12% of its revenue, and other major partners,' Dawson warns.

'Ironically, mobile advertising, which is one of Google's fastest growing opportunities, is non-existent today for Facebook, which doesn't display advertising on its mobile products. This represents both an opportunity and a threat for Facebook. Despite all this, though, Facebook is if anything increasingly dominant in the social networking space and Google still has a steep hill to climb if it is to truly have a competitive impact with Google+,' Dawson concludes.