Without a doubt, Q1 was crucial for Facebook: it’s the first time the company’s progress could be evaluated following the filing of its S-1. With the Facebook IPO right around the corner, there are plenty of skeptics, and the company has lots to prove. While it’s first Q1 results since filing do look promising, there are plenty of weak spots. At the end of the day, Facebook needs to show how it will do more than grow its existing revenue streams. Facebook hasn’t reported yet, but let’s take a look at the estimates from TBG, published by Business Insider.

Here’s what you need to know:

1. The good news: Facebook posted a 41 percent surge in Facebook Marketplace ad rates on a CPM basis. So, if it can get more clicks (it charges mostly on CPC), the company would free up more impressions for monetization. Here’s how it works: if it gets one click per thousand impressions on a $1 CPC ad, its effective CPM rate is $1. But, if it could deliver two clicks at $1 CPC on 1,000 impressions, it would get $2 for the same 1,000 impressions. The first 500, on average, would generate $1, as would the second 500, because it wouldn’t need to burn through 1,000 impressions to get the one click.

2. The bad news: Facebook’s performance got a little weaker in the US, where it’s growth is slowing overall. Granted, Facebook needs to look to emerging markets for rapid growth of its existing advertising products. But, there’s still more that can be generated in mature markets: Facebook just needs to develop new ways to get more share of advertiser spend.

3. Of prices and results: CPC rates have gone up almost 25 percent QOQ. The largest increase was in France, at 35 percent, followed by the US, at 20 percent. YOY, CPC rates are up 34 percent in the US, with TBG indicating that ‘unbalanced supply and demand’ could be the cause. Rate increases are good for Facebook, and they do indicate that advertisers are willing to spend more on the platform. What’s interesting, though, is that, in the US, the average click-through rate fell 8percent in the US. It was off 13 percent in France – and an average of 6 percent for the company’s top five territories. It’s taking more impressions to fulfill a click, which could put pressure on Facebook. If it takes more impressions to deliver a click, the result is an effective decline in saleable inventory. Revenue potential thus falls.

4. Sectors spending: retail advertisers accounted for almost 25 percent of impressions served, an increase in overall impression share of 10 percentage points. This is a good sign, as it shows the sector is deploying much more of its budget to Facebook. The top five sectors, however, are unchanged, accounting for 78 percent of all impressions served. The finance sector had the most expensive advertising experience on Facebook, with CPCs costing up to 3.5X that of the food and drink sector (which had the lowest costs).

5. Buying friends: getting loved costs more than it used to. Average cost per fan spiked 43 percent from Q4 2011 to Q1 2012. This measure was up 77 percent in the UK and 37 percent in the US. This could drive fan-generation ad spend off platform in the future.

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Source: Business Insider

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