(Disclosure: I have short-term options against Facebook, but I believe it’s a fantastic company in the long term.)
Based on Facebook’s second quarter earnings, here is how much revenue Facebook generated for each region:
A user in the U.S. is worth 6 times as much as a user in Asia.
There are a number of reasons that revenue varies by region:
- Countries like the U.S. and Canada have well-established online ad markets.
- In emerging markets, people often have less money to spend. When I lived in Malaysia, an iPhone cost the equivalent of one month’s salary for the typical Malaysian. This lower purchasing power caps how much brands can afford to spend on marketing and still make a profit.
- The types of devices being used affect what types and how many ads can be displayed. The market for mobile ads is significantly less mature than the market for online ads. In Asia and the rest of the world, much of Facebook’s usage is likely to be on mobile devices.
- It takes time to develop an infrastructure in each market.
- Usage is likely higher in more established markets. Advertising-supported models are highly dependent on usage.
Although the revenue levels are very different across markets, the cost of serving a user isn’t as dramatically different for the same level of usage.
Part of the reason Facebook stock has been beaten up since IPO is that the company is investing in developing those markets before the ad opportunity truly exists.
That shouldn’t surprise anyone: That’s exactly what Facebook said it would do in its IPO registration documents.
[Top image credit: photobank.kiev.ua/Shutterstock]