How Facebook's Revenue Is at Risk

Facebook's (Nasdaq: FB  ) IPO glow sure didn't last long, with shares promptly plunging on their second public day. There are plenty of other risks looming on the horizon, most notably increasing advertising rivalry from top dog Google (Nasdaq: GOOG  ) and social gamer Zynga's (Nasdaq: ZNGA  ) obvious interests in broadening its horizons. In addition, will Facebookers stay engaged forever? When all else fails -- advertise! We can break down Facebook's current figures for deeper insight. We know that the majority of Facebook's "payments and other fees" revenue comes directly from Zynga. We also know that of Zynga's player base, a disproportionately small number of players actually contribute to sales, and these players are affectionately known as "whales," just like the high rollers in Vegas. Last quarter, Zynga had only 3.5 million paying players out of 182 million monthly unique users, or MUUs. That's just 1.9% of the MUU base willing to pay up. By that rationale, an even smaller fraction of Facebook's overall MAU base actually contributes to the "payments and other fees" revenue, inflating the average revenue per user, or ARPU, for the rest of us who will never heed the call of a virtual tractor in FarmVille. I've never paid a cent for anything on Facebook's platform, and I never will. On top of that, Zynga is assuredly interested in eventually moving away from Facebook's payment platform in favor of its own. Backing out the payments segment and focusing on the core advertising business is useful for both of these reasons. Here's what happens to worldwide and North American (the segment with the highest monetization) ARPU if you back out payments revenue, which effectively looks at average advertising revenue per user.