Facebook Hasn’t Reached Its Full Potential. Here’s How It Could Make More Money [Charts]

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  • Facebook COO Sheryl Sandberg
    Facebook Chief Operating Officer Sheryl Sandberg
  • facebook
    Facebook will release Q2 2013 earnings Wednesday AMC.
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Facebook’s stock (NASDAQ:FB) has been soaring ever since the social networking giant posted second-quarter earnings that significantly beat analysts’ estimates. Facebook earned $1.8 billion in revenue in the three months ended in June, a good $200 million more than expected.

Most of Facebook’s revenue comes from advertising -- $1.6 billion of that Q2 revenue came from ads -- despite the fact that 76.4 percent of Facebook’s users say they “never” or “rarely” click on advertisements or sponsored listings, according to a recent poll conducted by Greenlight.

Here’s a chart showing the poll results. Hover over any section of the chart for more info:

Greenlight also asked respondents if they would be willing to pay for an ad-free Facebook, and if so, how much they’d be willing to pay for such a service. While almost 85 percent of respondents said they wouldn’t be willing to pay anything at all, 15 percent said they would be willing to pay a small amount, and 1 percent of respondents said they would be willing to pay more than $10 for an ad-free experience.

Here’s a chart that breaks down how many Facebook users are willing to pay for an ad-free experience and how much they’re willing to pay, per the Greenlight poll. Hover over any section of the chart for more info:

By not offering users the option of avoiding ads for a small subscription fee, Facebook is losing out on a potential revenue stream. If only 10 percent of Facebook’s U.S. and Canada users opted out of ads at the low cost of $1/month, Facebook could earn $170 million a year, at no increase in operating cost. Of course, Facebook might want to raise the cost a bit, so that only those users who really don’t like ads and are willing to pay a premium to avoid them will opt in to the ad-free experience.

But that’s not the only area where Facebook has potential to grow.

First, look at this chart of Facebook daily active users, by region, since the second quarter of 2011:

Now, here’s a chart of Facebook’s revenue since the second quarter of 2011, by user geography:

Let’s look at both data points together -- total 2012 revenue by user geography and active daily users in each region:

Even though only about 23 percent of Facebook’s daily active users lived in the U.S. and Canada  region in 2012, almost half of Facebook’s revenue came from that region.

Europe, Asia and the rest of the world account for 77 percent of Facebook’s daily active users, and when combined, they account for about the same amount of revenue that Facebook generates from its U.S. and Canada users. It’s understandable that per-user revenue would be much lower in countries with a much lower GDP per capita than the U.S., such as India.

However, in the short term, Facebook definitely has room to grow in richer countries.

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