• by Mark Walsh  @markfwal, April 23, 2012

Advertising accounted for the vast majority of Facebook’s $3.7 billion in revenue last year -- at $3.2 billion, or 85%. The company’s ad sales will grow 32% this year to $4.2 billion and hit $12.6 billion by 2017 -- representing a 25% compound growth rate, according to a new forecast from Brian Wieser, senior research analyst at Pivot Research Group.

In five years, advertising will still make up 70% of Facebook’s revenue, though e-commerce and other businesses will grow faster during that period. By 2017, the report estimates Facebook’s share of the U.S. display ad market will more than double from 12% to 25%.

Wieser predicts the social networking giant will become a bigger player in video and mobile advertising in the coming years. Video ad spending on Facebook in the U.S. will rise to $764 million in the U.S. from zero today. Mobile ad revenue will reach $490 million by then, representing about 22% of the non-search mobile market in 2017. Global figures are projected to roughly double these totals. 

Despite becoming one of the world’s largest ad sellers, Wieser points out that Facebook’s revenue will be dwarfed by Google, which will have $78 billion in ad sales by 2017 by continuing to dominate paid search. Still, there’s little question that Facebook owns social media, leading marketers to spend more in the space to connect with consumers.

"By now, other players have emerged with scale in an absolute sense, including (in the United States) LinkedIn, Twitter, Pinterest and Google+, but that scale remains mostly niche-focused and thus more limited when compared with Facebook,” states the Pivotal report.

Attracting big brands will be the main focus of Facebook’s advertising efforts for the long term, although this segment accounted for only $600 million on the site in 2011. Wieser noted that WPP Group expects its clients to double spending on Facebook to $400 million this year, reflecting a bullish outlook.

“We estimate that the bulk of this spending occurs in the United States, and assume that their spending accounts for perhaps a quarter of the'brand’ dollars that Facebook generates,” he wrote. The study estimates small business is responsible for $1 billion of Facebook’s $1.6 billion in U.S. ad revenue. It predicts growth in the segment is more likely to come from adding more small business advertisers, rather than expanding the modest budgets of existing marketers.

Leading up to Facebook’s expected IPO in May, Wieser projects a valuation of $82 billion for the company, although estimates elsewhere have hit $100 billion.

Among the risks the report flags are heightened competition from Google, and growing capital needs driven by intensifying competition and privacy issues. Facebook’s policies have repeatedly triggered privacy controversies, leading to its settlement with the FTC late last year.