How efficient is the Facebook advertising revenue engine?

After reviewing Don Dodge’s 2007 estimates for Google’s revenues per search query I couldn’t help but quickly compare those figures with Facebook’s estimated CPM figures.

I did a quick review of the Google revenues and the recent comScore search data over the past 2 quarters and it would appear the $0.12 per search query figure is still a relevant metric. Google continues to be the most efficient global advertising revenue engine on the web.

So what about Facebook? How did the Valley’s new mega star measure up?

Earlier this week Wall St 24/7 published a post on the recent reports that Facebook Has Nearly One Of Four Internet Page Views In US. In that piece they reported that “Recent data from Morgan Stanley and other sources show that Facebook gets an advertising CPM of about $.60 compared to internet portals such as Yahoo! (NASDAQ: YHOO) which charge closer to $2.50. Smaller, more vertical sites can command CPMs from $5 to nearly $10″.

If you are wondering where these estimates came from back in May Royal Pingdom reported that “According to data from Google, Facebook serves 260 billion page views per month.” These 260 Billion pages views per month translates into 3.12 Trillion page views per year. Now add to this the Wall St Journal figures reported earlier this year by TechCrunch (See Facebook’s revenues could hit between $1.2 to $2 Billion).

If you take the top end of that estimate and apply to the equation you get…

($2 Billion divided by 3.2 Trillion) * 1000 = $0.625 CPM.

Alternatively if you run with a CPM rate of $0.60 by 3.12 Trillion pages you achieve a target estimate of $1.87 Billion.

Based on the $0.12 per Search Query Metric Google’s RPM is $120-190. So at $0.60 Facebook is running at somewhere between 0.5% and 0.3% of Google’s capability to generate revenue per page request served.

We see a similar gap when we compare ARPU’s. Last year, while Google’s annual global ARPU was estimated at just over $20 by Morgan Stanley, Facebook’s was estimated to be no more than $0.25 per month by Fred Wilson.

Google’s market cap today is around $190 Billion. Facebook’s second board valuation is estimated to be $41 Billion. This puts Facebook’s potential IPO valuation at around 20% of Google’s current market value.

Needless to say this lack of correlation between the estimated market value and the equivalent capacity to generate revenue provides yet another dimension to the ongoing debate over Facebook’s skyrocketing second market valuation.

[Update 16/5/2012]

Note these estimates have been subsequently been updated and expanded into a new metric ARPMOE (Average Revenue per Minute of User Engagement). You can find the comparative study of Facebook vs. Twitter vs. Yahoo! vs Google here

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