Facebook plans to announce its 2013 first quarter earnings tomorrow after the stock market closes.

Analysts expect earnings of 13 cents per share on revenue of $1.44 billion during the period of Jan. 1 to March 31. In Q4 2012, which included the holiday season, Facebook had earnings of 17 cents per share on revenue of $1.585 billion.

Here we’ll review the changes Facebook made in the first quarter across each of its areas of monetization.

Ads

Last year advertising made up 84 percent of Facebook’s overall revenue. In the first quarter of this year, the social network introduced new targeting capabilities and made a number of adjustments to the look and performance of its ads. The company also continued to ramp up the amount of ads in News Feed and on mobile, adding a three-in-one “Pages You May Like” unit and a new type of Page-Like ads to the mobile feed.

Partnerships with data vendors Datalogix, Epsilon, Acxiom and BlueKai opened up the opportunities for advertisers to reach new audiences based on third-party data, such as offline purchase behavior. This feature was in limited beta during Q1, but rolled out more widely as “partner categories” earlier this month.

Lookalike Audiences, which help advertisers target users similar to those in their Custom Audience databases, was another exciting new beta feature for advertisers last quarter. Facebook launched it globally in March.

A tool that was available for most advertisers throughout the quarter was conversion tracking. This allows advertisers to measure and optimize their ads leading off-Facebook. It’s particularly important to direct response advertisers and app developers.
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Facebook today shared a recap and several videos from its event at the Game Developers Conference last month. The key takeaways from the presentations were Facebook’s commitment to the desktop gaming platform, its emerging focus on core and mid-core games, and its support for cross-platform games.

These are the three main areas to look at over the course of the year to understand the company’s progress as a gaming platform — something many are beginning to doubt or write off completely.

Desktop

Facebook says desktop gaming is “healthy and growing,” despite the attention on mobile, tablets and other new platforms. The company pointed to research suggesting the desktop games business is expected to grow to $15 billion, not including China. Last year desktop games generated more than $2.8 billion, accounting for nearly 20 percent of the overall industry.

“We care about desktop because it’s big, and it’s growing and we can make it grow faster,” Director of Games Partnerships Sean Ryan said at the GDC event last month. “It’s a big business in total around the world and for Facebook.”

The social network says more than 250 million people play games on Facebook each month, which is a 15 percent increase over last year. Many think Facebook games are past their heyday, but Facebook says there are now more users playing games on the site than ever before.
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Facebook today provided updates regarding its transition from Credits to local currency pricing. The company offered new documentation for game developers and announced that migration will occur in Q3 this year.

Facebook decided to phase out Credits in favor of a user’s local currency — dollars, pounds or yen, for example — in June 2012. This allows the social network simplify the purchase experience and give developers more flexibility. Developers will be able to set more granular and consistent prices for non-U.S. users and price the same item differently on a market-by-market basis, as opposed to pricing their virtual goods in $0.10 USD increments as was required when Credits became mandatory in July 2011. This also eliminates any confusion that resulted from users trying to think about conversion rates for dollars, Credits and in-game currency.
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Facebook re-enables photo tag suggestions – Facebook announced Thursday that it is re-enabling the photo tag suggestion feature in the U.S., which uses facial recognition to help users identify  friends in their photos. The controversial feature launched in late 2010, and was removed temporarily last year while Facebook made technical improvements and considered privacy matters. The feature uses algorithms to group photo uploads by those with similar faces, then it suggests friends those faces may belong to by matching them with previously tagged photos of friends. Users can adjust or approve those tags. The feature is on for users by default.

Facebook launches Ask Our CPO feature -  Facebook this week launched an Ask Our CPO feature, which allows users to submit questions, concerns and feedback about privacy issues to the company’s chief privacy officer, Erin Egan, who will respond to some questions each month. The feature works as an app on the Facebook Privacy page and is part of Facebook’s attempts to give users more opportunities to raise important matters and get responses from the company, especially after the social network eliminated the option for user votes on policy changes late last year.
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Approximately 27 million users bought virtual goods using Facebook Payments in 2012, up from 15 million in 2011, according to a document the company filed with the Securities and Exchange Commission today.

Facebook generated $810 million in payments revenue in 2012. CFO David Ebersman said only $5 million of that came from sources outside of games, such as Gifts and user promoted posts. Overall, payments and other fees revenue in 2012 increased $253 million, or 45 percent, compared to 2011, despite close to doubling the number of users buying virtual goods.

That could be because of Facebook’s promotions to get more users spending money in games. Although the volume of paying users increased, it the amount new payers spend could be much less than other players. Another factor could be growth in international markets. Facebook says 51 percent of its revenue from marketers and developers based in the United States, compared to 56 percent in 2011. This figure includes advertising revenue as well, but international developers are increasingly finding success on the social network and the overall number of international users is growing much faster than in the U.S.
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Facebook today announced that $5 million of its $256 million payments business came from sources outside of games, such as Gifts and user promoted posts during the fourth quarter of 2012.

The company didn’t offer a specific breakdown, but CFO David Ebersman said that user promoted posts were the primary source of that revenue. Ebersman said the company believes in the longterm potential of promoted posts, Gifts and other payments opportunities, but for now they represent a very small portion of overall revenue. Ebersman says the company expects this to continue to be the case through 2013, based on current run rates.

Facebook launched Gifts in September 2012 as a way for users to buy physical and digital gifts for their friends via desktop or mobile. The product rolled out to all U.S. users by mid-December, but the company has not revealed plans to expand Gifts beyond the U.S. for now. Although the company heavily promoted Gifts over the holidays, sales don’t seem to have taken off.
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Zynga.com is no longer an extension of the Facebook platform, according to an SEC document filed today.

Originally, Zynga’s games platform featured an extremely deep integration with the Facebook platform that appeared to be born of the developer’s privileged relationship with Facebook. Zynga.com previously supported Facebook ads and Facebook payments in a deal unlike anything any other developer had enjoyed. As of March 2013, however, Zynga is relegated to using the standard terms of service that every other developer agrees to when integrating Facebook with their own sites.

With the new agreement, Zynga is losing some (but not all) of its exclusivity with Facebook. As the developer struggles with falling stock prices and decreasing returns on investment in blockbuster social games, losing some protection from Facebook might cause stock to dip even lower. Zynga closed today at $2.62 and is now at $2.35 in after-hours trading. Facebook is also slightly down in after-hours, but still trading higher than the company has been since July.

Effective on March 31, 2013, Facebook will no longer guarantee Zynga certain web or mobile growth targets in exchange for continuing to invest in games on the platform. Facebook also will no longer be prohibited from developing its own games, however, it’s unlikely that the social network would get into the game development business any time in the near future. The company has generally taken the position of being a platform rather than producing its own content.

“We’re not in the business of building games and we have no plans to do so,” a Facebook spokesperson said. “We’re focused on being the platform where games and apps are built.”

Continue reading on our sister site, Inside Social Games.

Mark Zuckerberg admitted that the Facebook’s games ecosystem “is not doing as well as I’d like” today on Facebook’s Q3 earnings call, though he said it is growing overall.

Payments revenue from social game giant Zynga dropped 20 percent for Facebook compared to Q3 2011. In total, Zynga made up 43 percent of Facebook’s Payments revenue this quarter and just 7 percent of Facebook’s total revenue (including Zynga’s ad spend). This is down significantly from previous quarters where Zynga has made up as much as 63 percent of Payments revenue (last year) and 12 percent of total revenues (at the point of Facebook’s IPO).

Even so, Zuckerberg says the games ecosystem as a whole is growing with revenues from other game developers increasing 40 percent over the last year since Payments was made mandatory for game developers. Payments (and other fees) revenue for Q3 was up year on year almost 13 percent from $156 million to $176 million.

Zynga’s Q3 earnings call is scheduled for Wednesday. Reports today indicate a large number of its employees were laid off earlier this morning and its Boston studio was closed.

Facebook mobile carrier billing live in select countries – Facebook began accepting mobile payments for its mobile web service via carrier billing in the U.S., UK and Germany this week, according to an announcement from Bango, which is powering the service. Users can buy game credits and virtual goods through their mobile phone operators, eliminating the requirement for credit cards or premium SMS. The Facebook-Bango partnership was first reported in February, but the companies are still rolling out carrier billing to additional countries later this year. Bango provides similar services for BlackBerry’s App World, Opera’s Mobile Store and Google Play.

Offerpop announces new post categories and fan database features – Facebook Preferred Marketing Developer Offerpop this week launched its Integrated Social Marketing Platform in private beta. Offerpop customers will get to use new features like Categories & Posts and Fan Database. With Categories & Posts, marketers can track and categorize their page posts with topic tags to get better insights about what type of content drives results. With Fan Database, Offerpop will automatically create social profiles with Facebook ID & profile data, email addresses and more for every user who lands on a customer’s brand page. Marketers will be able to segment fans based on the categorized posts they Like, comment or share, as well as rank their most engaged, loyal and influential fans.

Ustream adds posting to fans pages and Open Graph to mobile app - Streaming service Ustream this week released an update to its Broadcast For Friends app. The latest update to the application allows page managers to post videos to any of their fan pages. The app also now offers Open Graph integration which helps users share their video activity and history across Facebook.

Facebook now allows ‘Registered to Vote’ story on Timeline – Users can now add that they registered to vote as a life event on their timelines. Users can add details such as where, when and why they decided to vote. If users want more information on how to register, Facebook also provides links to a user’s state election authority. This is similar to Facebook’s recent addition of “Became an Organ Donor” to the life events section of Timeline.

Facebook shares sink further – Facebook shares closed at $19.05 today, dropping more than 4 percent as the lock-out period ended and large investors were able to begin selling their shares. The number of shares available for trading increased 60 percent on Thursday, which led the stock to fall 6.3 percent that day. In all, Facebook’s value has been cut in half from its IPO price of $38. Over the next nine months, more shares will be freed up, which could push the price even lower.

Instagram deal could be closer to closing - Facebook is reportedly looking to push its acquisition of Instagram forward by using a California law that allows it to issue shares without approval from the Securities and Exchange Commission. The deal has been delayed because of SEC investigations that occur whenever companies make large acquisitions. The U.K.’s Office of Fair Trading approved the deal earlier this week. Until the deal goes through, the two companies must operate independently. Instagram, for example, launched a blog for businesses and added a new photo map feature this week.

Facebook looks to expand Oregon data center – Facebook filed an application with the city of Prineville, Ore., to construct a new data center near its existing facility opened there in April 2011. The proposed 62,000-square-foot building is nicknamed “Sub-Zero” and will house a new type of deep-storage device that powers off when it’s not in use. Currently a rack of Facebook servers use about 4.5 kilowatts. Facebook tells Wired that its goal is to have the new servers operate at around 1.5 kW.

Social games and App Center reach new milestones – Facebook shared that there are more than 235 million people playing games on Facebook.com each month, compared to 205 million during this time last year. The number of people playing games on Facebook has grown by 8.4 percent since the beginning of the year. In July, Facebook drove people to the App Store and Google Play more than 170 million times. More than 150 million people used the App Center in the past month. The new section of the site is driving 2.4 times more installs than the previous apps and games dashboard. Facebook also says users who install an app from the App Center are 35 percent more likely than the average user to return to the app the following day and 17 percent more likely to return within a week.

Facebook plans national convention presence - Facebook announced its plans to be involved in both the Republican and Democratic national conventions, including holding events about the social network and its marketing and app platform, giving conventioneers opportunities to share their experience and launching the “I’m Voting” app.

Facebook launches payer promotion API – Facebook released a new API this week to allow social game developers to see whether a person is eligible for a “payer promotion” and then serve them with a custom unit to highlight the offer. The payer promotion, which is subsidized by Facebook, gives certain users a discount on virtual currency. Now in addition to letting users know about these promotions through TrialPay offer walls and DealSpot, developers can create their own in-game units that may increase conversion and lead players to buy more currency.