Facebook 2013 Annual Report Download - page 46

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expected to generate. If such review indicates that the carrying amount of property and equipment and intangible assets is not recoverable,
the carrying amount of such assets is reduced to fair value. We have not recorded any such impairment charge during the years presented.
In addition to the recoverability assessment, we routinely review the remaining estimated useful lives of our amortizable intangible
assets. If we reduce the estimated useful life assumption for any asset, the remaining unamortized balance would be amortized over the
revised estimated useful life.
Components of Results of Operations
Revenue
We generate substantially all of our revenue from advertising and from fees associated with our Payments infrastructure that
enables users to purchase virtual and digital goods from our developers with applications on the Facebook website.
Advertising. Our advertising revenue is generated by displaying ad products on the Facebook website or mobile application
and third-party affiliated websites or mobile applications. Marketers pay for ad products either directly or through their relationships
with advertising agencies, based on the number of clicks made by our users, the number of actions taken by our users or the number
of impressions delivered. We recognize revenue from the delivery of click-based ads in the period in which a user clicks on the content,
and action-based ads in the period in which a user takes the action the marketer contracted for. 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. The number of ads we show is subject to methodological changes as we continue to evolve our ads business
and the structure of our ads products. Whether we count the initial display only or every display of an ad as an impression is dependent
on where the ad is displayed. For example, an individual ad in News Feed that is purchased on an impression basis may be displayed
to users more than once during a day; however, only the initial display of the ad is considered an impression, regardless of how many
times the ad is actually displayed within the News Feed to a particular user. We calculate price per ad as total ad revenue divided by
the number of ads delivered, representing the effective price paid per impression by a marketer regardless of their desired objective
such as impression, click, or action.
Payments and other fees. We enable Payments from our users to purchase virtual and digital goods from our developers with
applications on the Facebook website. Our users can transact and make payments on the Facebook website by using debit and credit
cards, PayPal, mobile phone payments, gift cards or other methods. We receive a fee from developers when users make purchases in
these applications using our Payments infrastructure. We recognize revenue net of amounts remitted to our developers. We have
mandated the use of our Payments infrastructure for game applications on Facebook, and fees related to Payments are generated
almost exclusively from games. Our other fees revenue, which has not been significant in recent periods, consists primarily of user
Promoted Posts and our ad serving and measurement products.
Cost of Revenue and Operating Expenses
Cost of revenue. Our cost of revenue consists primarily of expenses associated with the delivery and distribution of our
products. These include expenses related to the operation of our data centers such as facility and server equipment depreciation, facility
and server equipment rent expense, energy and bandwidth costs, support and maintenance costs, and salaries, benefits, and share-
based compensation for employees on our operations teams. Cost of revenue also includes credit card and other transaction fees related
to processing customer transactions.
Research and development. Research and development expenses consist primarily of salaries, benefits, and share-based
compensation for employees on our engineering and technical teams who are responsible for building new products as well as improving
existing products. We expense all of our research and development costs as they are incurred.
Marketing and sales. Our marketing and sales expenses consist primarily of salaries, benefits, and share-based compensation
for our employees engaged in sales, sales support, marketing, business development, and customer service functions. Our marketing
and sales expenses also include user-, developer-, and marketer-facing marketing and promotional expenditures.
General and administrative. Our general and administrative expenses consist primarily of salaries, benefits, and share-based
compensation for our executives as well as our legal, finance, human resources, corporate communications and policy, and other
administrative employees. In addition, general and administrative expenses include outside consulting fees, and legal and accounting
services. General and administrative expenses also include legal settlements and amortization of patents we acquired.