Mobile Payments Aren’t Exactly Working Out at Facebook

January 31, 2013

shutterstock_75740524Although Facebook generated around $2,000 a minute in payments revenue last quarter, that income paled in comparison to advertising, which totaled $1.33 billion. Company officials acknowledged yesterday that payments revenue is proving tough to come by.

The central problem with Facebook Payments is, surprisingly, mobile. On the surface, Facebook is excelling in mobile. The company hosted 157 million active mobile users per month last quarter, up from 126 million in the third quarter and just 58 million the year previous.

But mobile and payments aren’t meshing at Facebook.

Facebook CFO David Ebersman explained it this way yesterday during the company’s 4Q earnings call:

In terms of 2013 expectations for payments, our games ecosystem continues to show healthy signs of diversification with new kinds of games growing engagement and monetization in Q4. However, we continue to face an offsetting headwind from declining desktop usage in developed markets since our games payments revenue is essentially all from desktop computers.

In terms of non-games payments revenue, while we remain excited about the long-term potential of commerce on Facebook, current revenue from user Promoted Posts and Gifts is very small, and we expect 2013 contributions from these initiatives to remain very small given current run rates.

In other words, mobile users aren’t using Facebook for games, and Facebook derives most of its payments revenue from games. We get that. Temple Run, Fruit Ninja, Campus Life, etc — these games all work exceptionally well as standalone mobile apps. There is no need for them to be housed within a Facebook infrastructure, or at least not yet.

Still, Facebook generated $256 million of payments and “other revenue” last quarter (it was mostly payments), up from $176 million in 3Q. It should be noted that last quarter Facebook recognized revenue from four months of payments, rather than three, a result of an accounting treatment. In Facebook’s words: “Adjusting for the extra month, payments’ revenues from games was essentially flat with the fourth quarter of 2011.”

Will the payments dynamic change at Facebook? Here’s Ebersman’s view:

At this point, we don’t have any payments integrations with these mobile games, but our belief is that if we can help game developers to grow users’ engagement and monetization, it puts us in an interesting position to consider future financial relationships.

Short answer: maybe.

Facebook’s stock [ticker: FB] is trading down nearly 3% at $30.32 a share at 11:39 a.m. ET.

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