Facebook IPO rumors continue to rumble. But with the announcement by Target (NYSE: TGT) that it will begin selling Facebook Credits in gift-card form to shoppers starting Sept. 5, it appears that Facebook is looking hard at unique ways to increase its cash flow and profitability. That’s probably in part due to Facebook IPO hopes and a desire for new revenue streams.
The gift cards – in $15, $25 and $50 buys – go toward credit in Facebook’s wildly popular online games, including Zynga’s FarmVille and MafiaWars, among others. The games such as FarmVille, which allow users to buy imaginary land, grow imaginary crops and purchase imaginary stuff – are free to a point. They get users hooked and generate revenue through the sale of so-called virtual goods to keep your “farm” running.
Because of the immensely successful online games, these credits could be a huge source of Facebook’s revenues this year – perhaps as much as a third, according to insiders.
While the company itself has never disclosed its revenue breakdowns, in 2009 a board member told a media outlet the site would reap more than $500 million that year. And this year, its brand advertising revenues may be more than $1 billion, according to company estimates. Adding Target’s FaceBook Credits could bring in hundreds of millions more. Still, it needs to keep growing in profitability to avoid becoming just another fad.
The company announced last year that it was cash-flow positive. That doesn’t mean it’s turning a strong profit, it just means the cash it generates from ad sales and other forms of revenue (yes, FarmVille) now exceed the cost of servers and other expenditures.
And profits could come in some of their newly launched ideas. The “check-in” feature Facebook Places –modeled after the popular social site Foursquare – allows users to check themselves (and their friends) into different geographical locations, including restaurants. Coupon-related links could also help drive revenue on a hyper-local level.
The company isn’t stopping there. Some 100 million users hit third-party sites using their Facebook IDs through Facebook Connect. This gives the company ample leverage to sell ads for those third-party sites, or to sell data to those -parties sites, so that more targeted ads begin appear on your Facebook page. Scary? Maybe. But for advertisers, worth every extra penny it’s being charged.
The company is also said to be exploring online pay on e-commerce sites. The rational being that if your credit card information is already connected to the site, a Facebook-related pay system could be a bonus for time-strapped consumers.
The company’s focus on user growth has wildly exceeded any social networking site’s dreams, with a business model that relies on the “more people, more profit” line of thinking. It’s also benefited from the slow demise of sites such as MySpace and Friendster. It’s online social games are even now being copied by companies seeking to tap into this burgeoning market. The Walt Disney Co. (NYSE: DIS) acquired game start-up company Playdom Inc. for $563.2 million in July, and Google (NYSE: GOOG) is also looking to move into social games (a good idea for a company that has flat-lined somewhat in upward earning, though still not too shabby at $25 billion plus in revenues this year).
And if its growing base of users is any indication, more will flock to its offerings – advertisers included. Of course, 500 million “friends” is great. But not if you can’t make enough money off of them.
As of this writing, Burke Speaker did not own a position in any of the stocks named here.
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