Facebook 2012 Annual Report Download - page 81

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Revenue for the years ended December 31, 2012, 2011, and 2010 consists of the following (in millions):
Year Ended December 31,
2012 2011 2010
Advertising ........................................................ $4,279 $3,154 $1,868
Payments and other fees .............................................. 810 557 106
Total revenue ...................................................... $5,089 $3,711 $1,974
Advertising
Advertising revenue is generated by displaying ad products on the Facebook website or mobile app and
third-party affiliated websites or mobile apps. The arrangements are evidenced by either online acceptance of
terms and conditions or contracts that stipulate the types of advertising to be delivered, the timing and the
pricing. Marketers pay for ad products either directly or through their relationships with advertising agencies,
based on the number of impressions delivered or the number of clicks made by our users. The typical term of an
advertising arrangement is approximately 30 days with billing generally occurring after the delivery of the
advertisement.
We recognize revenue from the delivery of click-based ads in the period in which a user clicks on the
content. We recognize revenue from the display of impression-based ads in the contracted period in which the
impressions are delivered. Impressions are considered delivered when an ad is displayed to users.
Payments and Other Fees
We enable Payments from our users to our Platform developers. Our users can transact and make payments
on the Facebook Platform by using credit cards, PayPal or other payment methods available on our website. The
primary method for users to transact with the developers on the Facebook Platform is via the purchase of our
virtual currency, which enables our users to purchase virtual and digital goods in games and apps. Upon the
initial sale of our virtual currency, we record consideration received from a user as a deposit.
When a user engages in a payment transaction utilizing our virtual currency for the purchase of a virtual or
digital good from a Platform developer, we reduce the user’s virtual currency balance by the price of the
purchase, which is a price that is solely determined by the Platform developer. We remit to the Platform
developer an amount that is based on the total amount of virtual currency redeemed less the processing fee that
we charge the Platform developer for the transaction. Our revenue is the net amount of the transaction,
representing our processing fee for the service performed. We record revenue on a net basis as we do not
consider ourselves to be the principal in the sale of the virtual or digital good to the user.
Our Payments terms and conditions provide for a 30-day claim period subsequent to a Payments transaction
during which the customer may dispute the virtual or digital goods transaction. Through the third quarter of
2012, we had deferred recognition of Payments revenue until the expiration of this period as we were unable to
make reasonable and reliable estimates of future refunds or chargebacks arising during this claim period, due to
lack of historical transactional information. Beginning in the fourth quarter of 2012, we had 24 months of
historical transactional information which enabled us to estimate future refunds and chargebacks. Accordingly, in
the fourth quarter of 2012, we recorded all Payments revenues at the time of the purchase of the related virtual or
digital goods, net of estimated refunds or chargebacks. This change resulted in a one-time increase in Payments
revenue in the fourth quarter of 2012 of approximately $66 million as we recognized revenue from four months
of transactions.
Other fees, which includes user Promoted Posts and, to a lesser extent, Facebook Gifts, have not been
material in all periods presented in our financial statements.
Revenue is recognized net of applicable sales and other taxes.
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