24 October 2014

Facebook IPO: Payments biz 2011 revenues hit $557m

02 February 2012  |  5808 views  |  1 cash

Facebook pulled in revenues of $557 million from its payments business in 2011 as its decision to force games developers to use its virtual currency bared fruit, according to the social network's IPO filings.

In its S1 filing for an IPO that could value the firm at up to $100 billion and raise it $5 billion, Facebook reveals that payments and fee revenues have rapidly become a major source of income in the last year.

In 2009 payments contributed just $13 million to total revenues of $777 million, with advertising making up the rest. In 2010 the initial introduction of Facebook Credits saw a surge in revenue to $106 million, but this was still a tiny fraction of a total $1.97 billion.

However, the payments business began making a serious contribution when Credits became mandatory for all game developers accepting money, with limited exceptions, in July 2011. In 2011, revenues were $557 million out of a total of $3.71 billion.

Meanwhile, platform developers received more than $1.4 billion last year from transactions enabled by Facebook's infrastructure.

The IPO filing reveals the importance of Facebook's relationship with games developer Zynga, which contributed - through payments and advertising - 12% of the social network's total revenues in 2011.

In May 2010, the pair entered into an addendum to their terms and conditions with Zynga agreeing to use Facebook Payments. This deal, running until 2015, gives Facebook a fee of up to 30% of the face value of user purchases in Zynga's games on its platform.

On how Facebook will develop its payments strategy, the filing notes: "Payments integration is currently required in apps on Facebook that are categorized as games, and we may seek to extend the use of Payments to other types of apps in the future."

More generally, says the company: "Our future revenue from Payments will depend on many factors, including our success in enabling Platform developers to build experiences that engage users and create user demand for their products, and the fee arrangements we are able to negotiate in the future."

In a long section on the risk factors facing the business, Facebook suggested that regulatory demands may slow its progress in the payments arena:

"Depending on how our payments product evolves, we may be subject to a variety of laws and regulations in the United States, Europe, and elsewhere, including those governing money transmission, gift cards and other prepaid access instruments, electronic funds transfers, anti-money laundering, counter-terrorist financing, gambling, banking and lending, and import and export restrictions."

The filling confirms that Facebook has already applied for money transmitter licenses in the US. This will mitigate regulatory uncertainty and "increase flexibility in how our use of payments may evolve" states the firm.

Comments: (1)

Chris Yaldezian - IBM (Software Group) - San Ramon | 03 February, 2012, 17:05

In the beginning there were banks, and they did payments.  They did them in many forms, and charged many fees, and life was good.

Then came EBAY and it begat PayPal.  No big deal, they just do EBAY...oops.  Now there is FACEBOOK and they have "credits" and no big deal, it is funny money only useable on FACEBOOK. OOPS again!

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