After a rocky start, Facebook appears to have found a revenue model that makes it one of the digital world’s top performers. Facebook (NASDAQ:FB) announced some excellent second-quarter earnings recently, with revenues of $1.81 billion – over 10 percent more than analysts had predicted – impressing the company’s investors.
Facebook was widely thought of as an investment flop after the company’s IPO saw both institutional investors and retail shareholders lose much of their investment as the stock dipped in early trading. The recent revenue announcements have pushed Facebook’s stock price back towards the $38 it was trading at following its IPO.
The key metric behind the company’s growth is its RPU – revenue per user – a figure that’s frequently used by online firms to calculate their total audience value. After an early struggle to monetise its large audience, Facebook now has an average RPU of over $1.60 – a 25 percent increase from its average user value twelve months ago.
Facebook’s per-user revenue growth has been attributed to an increase in mobile advertising sales. Mobile ads display to over 70 percent of Facebook’s active users and command CPMs (cost per thousand impressions) that are far higher than FB’s standard desktop advertising product.
The company has also benefited from an increase in large-scale advertising on its platform. Facebook had previously struggled to attract the attention of corporate advertising partners, with brands such as General Motors opting out of its display network. Many of these partners have since returned to its advertising platform.
All in all, it’s a great time to be an investor in Facebook, particularly after the rocky performance following the company’s IPO. With a stock price that’s ticking up past its IPO valuation, 2013 could be Facebook’s breakout year as one of the advertising world’s biggest networks.
