Yesterday Facebook began the IPO process and made some of its very private financial details very public. The S-1 form is a pundit’s dream: it lays out a company’s every penny spent and earned as well as the pitfalls it believes it’s subject to. Facebook is no exception, and the company laid it all on the table for us yesterday.
We already got a good look at some of the basics – and to sum it up, Facebook and its founders and early investors are confirmedly rich people. What’s possibly more interesting, however, is some of what Facebook forecasts for the future.
In Facebook’s summary of risk factors, the company points out that the huge adoption of the mobile platform is at odds with a major source of its revenue. “Growth in use of Facebook through our mobile products, where we do not currently display ads, as a substitute for use on personal computers may negatively affect our revenue and financial results.” Furthermore, Facebook points out “We may not be successful in our efforts to grow and further monetize the Facebook Platform.”
Now, that latter point is unlikely – as are a number of these risk factors. A company basically needs to address everything that could potentially sink its business, and that’s what Facebook is doing. But given how important ads are to Facebook’s profit margin, and its forthcoming responsibility to shareholders, don’t be surprised if ads start hitting your smartphone in the near future.
Facebook says a “substantial majority” of its revenue comes from advertising. It also says that “We had more than 425 million monthly active users who used Facebook mobile products in December 2011. We anticipate that the rate of growth in mobile users will continue to exceed the growth rate of our overall MAUs for the forseeable future, in part due to our focus on developing mobile products to encourage mobile usage of Facebook.”
Ads on mobile are a sure thing. Facebook is creating a product and expects to drive users to mobile, because that’s where people are increasingly engaging with the platform. It also needs ads because that’s where most of its money comes from. You do the math. It will probably be a slow introduction with Sponsored Stories, and then it will eventually fully embrace Facebook ads.
Worried about being inundated with ads on your phone now? One other risk factor Facebook identifies might calm those fears a little: “[It could negatively affects us if] we are unable to successfully balance our efforts to provide a compelling user experience with the decisions we make with respect to the frequency, prominence, and size of ads and other commercial content that we display.”
It’s a line every Internet company has to toe if it wants to turn a profit. Lucky for Facebook, all the other numbers indicate it has us in the palm of its hand.
This article was originally posted on Digital Trends
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