Sun, September 25, 2022

Facebook (Meta) Earns a Lot of Money, But How?

Facebook and its business empire

Last year, Facebook Inc. changed its name to Meta. Facebook’s parent company Meta Platforms Inc. primarily earns money by selling advertising space on its various social media platforms. Its platforms include websites and mobile applications that allow users the ability to connect and communicate with family and friends. 

Meta’s business empire includes a world-famous social networking site Facebook, photo- and video-sharing app Instagram, and messaging apps Messenger and WhatsApp.

Facebook’s parent company also provides an ecosystem that allows users to connect through its Oculus virtual reality products. Meta is starting to put increased focus on its augmented- and virtual-reality products and services as part of its plan to develop the metaverse. 

It competes with other companies that sell advertising to marketers, etc. Meta’s major competitors include Apple, Alphabet Inc’s Google and YouTube, and Amazon.com. Moreover, it competes with Tencent Music Entertainment Group and Twitter.Inc. 

The social media giant posted a net income of $10.3 billion on $33.7 billion in total revenue for a net profit margin of 30.5% in the fourth quarter (Q4) of its 2021 fiscal year. It is worth noting that, as much as 97%, or $32.8 billion, was advertising revenue. The rest was generated by Meta’s new Reality Labs segment and other sources.

The company’s revenue jumped 19% year over year (YOY) in Q4 FY 2021, decelerating from the 35.1% YOY pace of growth in the previous quarter. Its net income declined 8.3% YOY in the fourth quarter, compared with a rise of 17.2% YOY in the previous quarter. People should keep in mind that Meta’s total operating income, used as a profit metric for its individual business segments, was $12.6 billion, down 1.5% compared with the same period last year. 

Meta and its business empire 

As of Q4 FY 2021, the social media giant now breaks down its financial results into the following two segments: Family of Apps (FoA) and Reality Labs (RL). The first category includes Facebook, Instagram, Messenger, WhatsApp, and other services. Meta’s second category includes its augmented- and virtual-reality products and services. Facebook’s parent company reports revenue and operating income for both of these segments.

Let’s learn more about the company’s business empire. The FoA segment includes all of the revenue that Meta generates from selling advertising to marketers. Money received from marketers is the main source of revenue for the company. 

Ads are displayed on its main social networking site, Facebook, as well as Instagram, etc. Interestingly, marketers pay for ads based on the number of impressions delivered or the number of actions, undertaken by users. 

The Family of Apps segment posted $32.8 billion in revenue in Q4 FY 2021. The segment generated more than 97% of Meta’s total revenue. The segment posted $15.9 billion in operating income, comprising all of the social media giant’s operating income for the quarter. Operating income jumped 6% YOY.

Reality Labs and new opportunities 

As stated above, the company’s Reality Labs segment is composed of its augmented- and virtual-reality hardware, software, and content. Augmented as well as virtual reality are technologies that are key to Meta’s plan regarding the Metaverse. Furthermore, this segment includes its Oculus virtual-reality headset.

Meta makes a lot of money thanks to its Family of Apps segment. However, we should not forget about its Reality Labs segment. It reported revenue of $877 million in Q4 FY 2021, accounting for about 3% of Meta’s revenue. The Reality Labs segment reported an operating loss of $3.3 billion in the fourth quarter, thus reducing Meta’s overall operating income. The operating loss in the fourth quarter was significantly larger than the operating loss of $2.1 billion that the segment reported in the same period of time last year. 

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