How Does Facebook (Meta) Make Money?

Facebook (Meta) generates most of its revenue from selling advertising space

Reviewed by Marguerita ChengFact checked by Melody KazelReviewed by Marguerita ChengFact checked by Melody Kazel

Meta Platforms (META), the company that owns Facebook, primarily makes money by selling advertising space on its various social media platforms. Those platforms include websites and mobile applications that give users the ability to connect and communicate with family and friends. The company’s sites and apps include social networking site Facebook, photo- and video-sharing app Instagram, and messaging apps Messenger and WhatsApp.

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

Meta competes with other companies that sell advertising to marketers, as well as companies that provide platforms for communicating and sharing content among users’ various social networks. Major competitors include Apple (AAPL), Alphabet (GOOGL) Google and YouTube, Tencent Music Entertainment Group (TME), Amazon (AMZN), and X (formerly Twitter).

Key Takeaways

• Meta Platforms sells ads on social media websites and mobile applications and also sells augmented- and virtual-reality products and services.
• Advertising sales are the primary source of Meta’s revenue.
• Facebook reported in 2021 that it lost daily active users for the first time in its history.
• Reality Labs is Meta’s augmented and virtual reality technologies segment, which features and sells products such as the Oculus VR headset.
• Meta discloses data about the diversity and inclusion of its general management and employees.

How Does Meta Make Money?

Facebook (the platform and apps) are free to users. So how does the company make any money at all? As noted above, its primary source of revenue is through digital advertising. Due to the enormous number of users and social media reach, advertisers large and small consider Meta a prime opportunity to present ads to viewers. Meta provides various ways for them to advertise, such as self-serve and targeted ads.

Marketers can target specific types of people based on different factors such as age, gender, location, interests, and behaviors. They buy ads that are placed on various Meta social media platforms and apps, including Facebook, Instagram, Messenger, and WhatsApp. Ads also appear on affiliated third-party applications and websites.

Ad prices are determined by an auction system based on bids and performance. Businesses are charged only for the number of clicks ads receive or the number of impressions (the number of times the ad is displayed).

A business that wants to run an advertisement sets a maximum budget and is charged a monthly billing based on the performance of the ad. While advertising provides Meta with the majority of its revenue, it’s not the company’s sole income focus. In fact, by changing its name from Facebook to Meta Platforms, Meta signaled its plan to develop sources of revenue beyond advertising. Its Reality Labs is one such source.

Note

Facebook changed its name to Meta on Oct. 28, 2021, and changed its ticker from FB META on June 9, 2022.

Meta’s Businesses

Facebook

Facebook is a social media platform that helps people to connect, communicate, and share with friends and family. It also facilitates connections with others with common interests. Facebook features such as Groups, Watch, and Marketplace can help users reach and make important new connections, as well. Facebook makes money for Meta primarily through advertising.

Instagram

Instagram is a social media application that individuals and companies use to share photos and videos with friends, followers, and other users around the world. As with Facebook, Meta makes money from the advertising placed on Instagram. It’s appealing to advertisers because many users use the photo and video app to find and buy products.

Messenger and WhatsApp

Messenger is the instant messaging application used by Facebook and Instagram to connect users to friends, family, groups, and businesses. It’s required to direct message others on those platforms.

WhatsApp is a hugely popular messaging application used by individuals and businesses worldwide. It’s simple, secure, and free (except for potential cell phone data allowance fees). Companies use it to communicate on various subjects with customers.

Both apps present Meta with monetization opportunities such as advertising and charging businesses for premium features that enhance customer support.

Reality Labs

Meta’s Reality Labs develops and offers Meta’s augmented- and virtual reality hardware, software, and content. Augmented and virtual reality technologies are key to the company’s plan of building out the virtual world called the metaverse.

Reality Labs makes the company’s Oculus virtual-reality headsets for consumers and offers a marketplace where people can purchase apps and games to use on the Oculus headsets.

Meta Portal is another component that offers dedicated devices for video calling. These products support consumers’ needs and desires to collaborate for business or simply to connect with friends and family.

Meta’s Financials

Meta posted net income of $39 billion on revenue of $134.9 billion for the 2023 fiscal year (FY) ending Dec. 31, 2023.

Approximately 99% of the year’s total revenue was advertising revenue. The remaining revenue contributors were the company’s Reality Labs segment and other sources.

Revenue grew 16% on a year-over-year (YOY) basis in 2023. Meta’s total operating income, which is used as a profit metric for its business segments, was $46.8 billion, which was up 61% when compared to the previous fiscal year.

Meta’s Business Segments’ Financials

As of Q4 FY 2021, Meta started breaking down its financial results into the following two segments:

• Family of Apps, which includes the company’s main social media platforms Facebook, Instagram, Messenger, and WhatsApp
• Other services
• Reality Labs, which includes the company’s augmented- and virtual-reality products and services

Before this change, the company only provided a breakdown of revenue for Advertising and Other revenue. It still provides this breakdown under the umbrella of the FoA segment.

Family of Apps

This segment captures all of the revenue that Meta generates from selling advertising to marketers, which comprises nearly all of the company’s total revenue. As mentioned previously, ads are displayed on Meta’s main social networking site, Facebook, as well as Instagram, Messenger, WhatsApp and other third party affiliated websites or mobile applications.

The segment posted $133 billion in revenue in 2023, comprising over 98% of the company’s total revenue. Revenue for the segment was up by approximately 16% compared with the year-ago revenue of $114 billion. Operating income came in at $62.9 billion, comprising all of the company’s operating income for the quarter. Operating income grew 61% YOY.

Reality Labs

The Reality Labs segment reported revenue of $1.9 billion in 2023, accounting for about 1.4% of the company’s revenue. Revenue for the segment decreased by over 13% compared with the previous year.

The segment reported an operating loss of $16 billion, thus reducing the company’s overall operating income. The operating loss was significantly larger than the operating loss of $13.7 billion that the segment reported a year earlier.

Meta’s Recent Developments

The company reported a boost in the number of monthly active users, reaching three billion as of the end of December 2023. It also announced its first-ever cash dividend on Feb. 1, 2024.

Regulatory Trouble Ahead?

In early 2023, Meta was fined $414 million by European Union (EU) regulators after it was discovered that the company had illegally forced users to accept personalized ads. The penalty carries significant implications for the social media giant’s advertising businesses, Facebook and Instagram, in the EU, a key market.

The 27-nation bloc passed a landmark data privacy law in 2018 in order to limit the ability of Facebook and other companies to collect user data without consent. The law has now been found to have been violated by Facebook’s lengthy terms of service, which effectively force users to either accept data collection or stop using the services. Facebook has three months to explain how it will comply with the ruling.

As a result of this and other potential regulatory rulings, Meta may need to make changes to its advertising practices in the EU and elsewhere. These changes could potentially involve giving users the option to choose whether their data is used for personalized advertising. Such changes, however, may negatively impact Meta’s revenue, as it currently earns a significant portion of its revenue through targeted advertising based on user data. 

How Meta Reports Diversity and Inclusiveness

As part of our effort to improve the awareness of the importance of diversity in companies, we offer investors a glimpse into the transparency of Meta and its commitment to diversity, inclusiveness, and social responsibility. We examined the data that Meta reports on the diversity of its board and workforce, to help readers make educated purchasing and investing decisions.

Below is a table of potential diversity measurements. It shows whether Meta discloses its data about the diversity of its board of directors, C-Suite, general management, and employees overall (a ✔ indicates where it does). It also shows whether Meta breaks down those reports to reveal the diversity of itself by race, gender, ability, veteran status, and LGBTQ+ identity.

How Does Meta Make Money From Ads?

Meta, formerly known as Facebook, primarily earns revenues by selling advertising space on its social media platforms, such as Facebook and Instagram. The cost of advertising varies and is based on an ad auction system. Marketers set a budget for advertising and Meta counters with how many impressions the company can get for their proposed budget. Meta also makes money by selling virtual-reality hardware and software as well as social media subscriptions. Although users can access Meta social media platforms at no cost, some may subscribe to exclusive features for a fee.

How Much Money Does Meta Make Per Day?

Meta reported total revenues of $134.9 billion for the 2023 fiscal year, which equates to approximately $369 million earned per day ($134.9 billion/365 days).

How Much Does Facebook Make Per User?

Meta reported Facebook and Messenger’s annual revenue per user (ARPU) as $13.12 in Dec. 2023. In other words, it earned an average of $13.12 per user during the year. The figure was higher in more developed markets; the company earned $68 per user in the United States and Canada, but in some other geographies the figure was as low as $4.50 per user. Also reported was Facebook’s monthly active users (MAU), approximately three billion as of Dec. 31, 2023.

The Bottom Line

Meta, the parent company to flagship brand and former namesake Facebook, reported 2023 revenues of $134 billion, with approximately 98% derived from advertising. The company reports revenues for its Family of Apps segment, which accounts for advertising dollars from its social media sites, plus the augmented and virtual reality Reality Labs segment, and other sources. Meta looks to Reality Labs to build out its virtual universe (the metaverse) and provide sources of income in addition to advertising.

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