Facebook's metrics for measuring user activity and Ad revenue
Facebook is a leading social media channel enjoying very high popularity and superb growth. While the size of YouTube’s audience has outgrown Facebook’s in recent years, Facebook continues to remain the favorite social media channel of users worldwide when it comes to building connections and being a part of online communities. The user base of Facebook grew to around 2.5 billion monthly active users in December 2019 which was 8% higher than the same period last year. Its revenue in 2019 also experienced impressive growth. The net revenue of the company rose to $70.7 billion in 2019 from $55.84 billion last year.
The main source of Facebook’s revenue is digital advertising which the company earns by selling placements to marketers. The company earns substantially all of its revenue from advertising. The free cash flow of the company grew to $20.7 billion in 2019 from $15.36 billion in 2018.
Growth in the community of Facebook users and higher user engagement has continued to drive revenue growth across the Facebook platform. Net advertising revenue of the company in 2019 grew to $69.66 billion in 2019 from $55 billion in 2018. Facebook continues to invest in its products to drive higher user engagement. Apart from that, the company also continues to improve the metrics it uses to measure user activity as well as advertising performance. Historically, Facebook has reported its number of Daily Active Users, Monthly Active Users, and Average Revenue Per User. However, starting in 2019, the company is using family metrics to measure user activity. They include Daily Active People, Monthly Active People, and Average Revenue Per Person. A key thing to note is that Facebook has divided its business operations into four geographic regions that include US & Canada, Europe, Asia Pacific and the rest of the world.
Facebook user metrics:
Daily Active Users:
Facebook defines Daily Active users as a registered and logged in Facebook user who has visited Facebook through the website or accessed the app on a mobile device or used facebook’s messenger application on a given day. The company uses DAUs and DAUs as a percentage of MAUs to measure user engagement on Facebook. In December 2019, the worldwide DAUs of Facebook grew to 1.66 billion (growth of 8%) compared to 1.52 million during the same period last year. Growth in 2019 came mainly from the regions including India, Indonesia, and the Philippines. During December 2019, the highest number of Daily Active Users was from the Asia Pacific region. The following table shows the number of Facebook Daily Active Users by region during December 2019.
|Region||DAUs (in millions) Dec 2019.|
|US & Canada||190|
|Rest of the World||532|
Monthly Active Users:
Facebook defines a monthly active user as a registered and logged in Facebook user who has visited the Facebook website or used the Facebook app on a mobile device or the messenger app in the last thirty days as of the date of measurement. MAU is used to measure the size of Facebook’s community of global active users. As of December 31 2019, Facebook had 2.5 billion Monthly Active Users which was 8% higher than the number of MAUs during the same period last year. Facebook had the highest number of Monthly Active users during December 2019 from the Asia Pacific region. The number of Monthly Active users from each geographical region during December 2019 was as follows:
|Region||MAUs (in millions) Dec 2019.|
|US & Canada||248|
|Res of the World||817|
Average Revenue Per User (ARPU):
Facebook calculates its revenue by user geography based on its estimate of the geography in which ad impressions are delivered, virtual and digital goods are purchased or consumer hardware devices are shipped.
Facebook defines Average Revenue Per User (ARPU) as its total revenue in a geographic region during a given quarter divided by the average of the number of MAUs in the region at the beginning and the end of the quarter.
Average Revenue per user (ARPU) =
(Total revenue from a region in a quarter) / (Avg of the MAUs in the region at the beginning and end of the quarter)
ARPU includes all the sources of Facebook’s revenue but the company only uses Facebook and Messenger users (MAUs) in this calculation. It is because the share of revenue of users except Facebook and Messenger users was never material. However, the geographic region to which the users belong affects the revenue and net financial results of the Facebook company. It is because the company monetizes users in various geographic regions at different average rates. The ARPU of the company is generally higher in the regions including the US & Canada and Europe. The revenue and ARPU of Facebook are higher from these regions because the online and mobile advertising markets are maturer and larger in these regions. As of 2019, ARPU from the US & Canada region was more than eleven times higher than the Asia Pacific region.
The annual worldwide ARPU of Facebook (sum of the quarterly ARPU during the year) in 2019 was $29.25 which was 17% higher than the previous year. ARPU grew at the highest rate in the US & Canada region followed by Europe. In the US & Canada region, ARPU grew by 24% compared to 20% in Europe, 18% in the Asia Pacific region and 16% in the rest of the world. However, user growth has been higher in the regions with lower ARPUs like the Asia Pacific and the rest of the world compared to the regions with higher ARPUs like the US & Canada and Europe. Facebook expects user growth in the future to be higher in the regions where the ARPU is lower. This will lead to Facebook’s global ARPU growing at a slower rate as compared to ARPU in any of the four regions or global ARPU could fall further even if ARPU in any of the four geographic regions grows.
Family Metrics Used by Facebook:
The family metrics used by Facebook include Daily Active People, Monthly Active People and Average revenue Per Person.
Daily Active People:
Facebook defines Daily Active Person as a registered and logged in user of Facebook, Instagram, Messenger and/or Whatsapp (products in the Facebook family) who have accessed at least one of these products on a mobile device or through a mobile browser on a given day. The users are not required to use a common identifier or link their accounts for using multiple products in the Facebook family. Therefore, Facebook has to attribute multiple user accounts within and across the family of Facebook products to individual people. Facebook calculated DAP through the use of complex techniques, algorithms, and machine learning models that estimate the number of unique people using one or more of the products in the Facebook family.
For this purpose, Facebook matches user accounts within an individual product or across multiple products when it believes these accounts are linked to the same person and counts them (groups of accounts) as a single person. Some margin of error is always possible in Facebook’s estimates of Daily Active Persons. It is mainly because these techniques and machine learning models require significant judgment. They are developed on the basis of internal reviews of a limited number of user accounts and are calibrated against user survey data. Facebook views DAP and DAP as a percentage of MAP as measures of engagement across the various Facebook products. In December 2019, there was an 11% increase in global DAP of Facebook compared to the same period last year. DAP in December 2019 grew to 2.26 billion against 2.03 billion in December 2018.
Monthly Active People:
Facebook defines a monthly active person as a registered and logged in user of one of the Facebook products who visited at least one of the products in the Facebook family through a mobile device app or through a mobile or web browser in the last 30 days of the date of measurement. Just as in the case of Daily Active People, Facebook has to attribute multiple user accounts within and across several products in the Facebook family since it does not require users to use a common identifier or link their accounts in order to use multiple products within the Facebook family. Facebook calculates MAP using complex techniques, algorithms, and machine learning models. Using these techniques, algorithms, and machine learning models, Facebook estimates the number of unique people using these accounts. It matches the user accounts within an individual product and across multiple products when it believes these accounts are linked to the same person and counts them (groups of accounts) as one person. Some margin of error is always possible in Facebook’s estimates of Monthly Active People which is mainly because these techniques and machine learning models require significant judgment. They are developed on the basis of internal reviews of a limited number of user accounts and are calibrated against user survey data. Facebook views MAP as a measure of the size of its global community of active users of Facebook products. Facebook has 2.89 billion MAP as of December 2019 which was 8% higher than the same period last year when the number of MAP stood at 2.64 billion.
Average Revenue per Person:
Facebook defines Average Revenue per Person as its total revenue during a given quarter divided by the average of the number of the MAP at the beginning and end of the quarter.
Average Revenue Per Person =
(Total Revenue During a Given Quarter)/ (Average of the Number of the MAP at the beginning and the end of the quarter.)
The annual worldwide ARPP of Facebook (sum of the quarterly ARPPs during a year) for 2019 was $25.57. It was 14% higher than 2018.
Following table shows the quarterly ARPP of Facebook in 2019:
The metrics used by Facebook to measure user activity and advertising revenue are subject to certain limitations. As already highlighted, these metrics are developed on the basis of internal reviews of limited accounts. While the methodologies it has adopted to measure user activity and advertising revenue require a lot of judgment, they are also susceptible to technical and algorithmic errors. Facebook regularly reviews its metrics to discover inaccuracies and make adjustments to improve the accuracy of these metrics.
Facebook Annual Report 2019.