Yesterday, Facebook announced a $200 million investment from Digital Sky Technologies, a Russian-based investment group that I am sure 99% of the Internet business had never heard of before yesterday. But DST is the company behind some of Russia’s biggest Websites, including Mail.ru and social network VKontakte (an amazing clone of Facebook, by the way).
During the conference call announcing the deal, Mark Zuckerberg reiterated a statement, first made in March, that Facebook’s revenue will increase 70% in 2009. Sheryl Sandberg, in a follow-up interview with PaidContent yesterday, also said:
“Our revenue is doing incredibly well—70 percent year over year (growth) this year means that the ad products we’ve built are working, it means that all of our sales channels, all of our markets international and domestic are very healthy, and it means that our ad models are working.”
The 70% figure first came out in a March 2009 New York Times article on the departure of finance chief Gideon Yu:
Regarding its financial state, Facebook said that in the quarter ending Tuesday, it beat its own internal projections and is on track to increase revenue by 70 percent this year.
Can Facebook actually achieve this goal? I’m doubtful. My eMarketer projections estimate 20% growth in ad spending on Facebook this year, to $300 million. Advertising forms the vast majority of Facebook’s revenue. I said as much to Businessweek in an article about the new funding:
“Where is that [70%] going to come from? I can’t see it coming solely from advertising. Either he [Zuckerberg] has some new revenue stream up his sleeve or he is crazy.”
Investment bank Cowen & Co., in a new report on online ad spending, believes the growth will indeed come from advertising and estimates that Facebook’s ad revenue will increase from $258 million in 2008 to $428 million in 2009. Cowen is one of the few companies aside from eMarketer that estimates Facebook revenue.
But Facebook’s future growth, however large or small, will not be solely from advertising. Facebook already generates some revenue from virtual gifts those little icons that people buy with credits and give to friends) and has been rumored to be considering a raft of other revenue streams, from a developer “tax” to ecommerce to virtual currency. New investor Alexander Tamas, of DST, has experience with payment systems and virtual goods at his other Internet companies.
One wild card: the rumor that Facebook is getting ready to launch an ad network based on Facebook Connect. Such a network would be very, very interesting, but also very, very tricky from a consumer privacy perspective. And, as Business Insider points out, advertisers are more focused on performance networks these days than on targeted brand advertising. The business climate for a Facebook ad network may not be right this year, but it could be the perfect temperature in 2010.
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