Advertising accounted for the vast majority of Facebook’s $3.7 billion in revenue last year -- at $3.2 billion, or 85%. The company’s ad
sales will grow 32% this year to $4.2 billion and hit $12.6 billion by 2017 -- representing a 25% compound growth rate, according to a new forecast from Brian Wieser, senior research analyst at Pivot
Research Group.
In five years, advertising will still make up 70% of Facebook’s revenue, though e-commerce and other businesses will grow faster during that period. By 2017, the report
estimates Facebook’s share of the U.S. display ad market will more than double from 12% to 25%.
Wieser predicts the social networking giant will become a bigger player in video and
mobile advertising in the coming years. Video ad spending on Facebook in the U.S. will rise to $764 million in the U.S. from zero today. Mobile ad revenue will reach $490 million by then, representing
about 22% of the non-search mobile market in 2017. Global figures are projected to roughly double these totals.
Despite becoming one of the world’s largest ad sellers, Wieser
points out that Facebook’s revenue will be dwarfed by Google, which will have $78 billion in ad sales by 2017 by continuing to dominate paid search. Still, there’s little question that
Facebook owns social media, leading marketers to spend more in the space to connect with consumers.
"By now, other players have emerged with scale in an absolute sense, including (in the
United States) LinkedIn, Twitter, Pinterest and Google+, but that scale remains mostly niche-focused and thus more limited when compared with Facebook,” states the Pivotal report.
Attracting big brands will be the main focus of Facebook’s advertising efforts for the long term, although this segment accounted for only $600 million on the site in 2011. Wieser noted that
WPP Group expects its clients to double spending on Facebook to $400 million this year, reflecting a bullish outlook.
“We estimate that the bulk of this spending occurs in the United
States, and assume that their spending accounts for perhaps a quarter of the'brand’ dollars that Facebook generates,” he wrote. The study estimates small business is responsible for $1
billion of Facebook’s $1.6 billion in U.S. ad revenue. It predicts growth in the segment is more likely to come from adding more small business advertisers, rather than expanding the modest
budgets of existing marketers.
Leading up to Facebook’s expected IPO in May, Wieser projects a valuation of $82 billion for the company, although estimates elsewhere have hit $100
billion.
Among the risks the report flags are heightened competition from Google, and growing capital needs driven by intensifying competition and privacy issues. Facebook’s policies
have repeatedly triggered privacy controversies, leading to its settlement with the FTC late last year.