by Tom Taulli | December 31, 2013 11:21 am
Facebook (FB) is looking kind of geriatric in tech years, as the social network has been around for nearly a decade. Perhaps the most notable sign of this has been a variety of surveys showing teens are simply bored with the social network — surveys that have many FB stock fans concerned.
Well, and Facebook execs too. Consider that, during the most recent earnings call, FB CFO David Ebersman made a quick comment that there were some problems with teen usage.
It was worrisome for investors … despite the fact that the company reported a blow-out quarter). FB stock plunged 15% in after-hours trading.
The irony? Seniors have made up the lost ground, becoming the biggest source of growth for Facebook! According to a recent study from Pew Center for Internet and American Life (yeah, there is no shortage of studies on social networking), the percentage of those 65 or older on Facebook has gone from 35% to 45% of the U.S. population.
It helps that older folks are becoming more comfortable with technology. And, of course, they always want to see videos and photos of their grandchildren. Plus, Apple (AAPL) iPads and Amazon (AMZN) Kindles are easy and affordable ways to get access to the Internet.
But teens are generally the most sought-after demographic. While they may not currently earn much money, they are at a stage for building brand loyalty — something that is important for FB stock over the long haul.
Then again, Facebook already has about 84% of U.S. teens signed up on its network, making it pretty tough to find growth. At the same time, Mark Zuckerberg has not been sitting around. In early 2012, he had the guts to shell out $1 billion for Instagram. Even though it was a controversial deal at the time, it probably helped provide a boost to FB stock, considering it was a savvy way to deal with the teen problem.
Something else: There is nothing wrong with having a huge mainstream audience. The group tends to be stickier and generally not willing to chase the latest fad. And as social networks become a key tool for making purchasing decisions, the audience will remain a big draw for advertisers.
Mobile will also be critically important as smartphones and tablets become essential tools for shopping. To this end, Zuck has turned his company into a mobile juggernaut, which has perhaps been the most important factor driving FB stock.
Still, FB stock may face some issues over the next few years. One is that, with about 1.2 billion users, it will get harder to maintain a decent growth ramp. There will be a ceiling for senior citizens, and only about 2.7 billion people have access to the Internet. In light of this, Zuck has started the Internet Initiative to find creative ways to provide Net access to the “next 5 billion people.”
There is also the growing problem of Facebook getting overeager with advertising. As I wrote about in a recent post, the service is looking cluttered, even resembling the dreaded MySpace. This could be one of the reasons teens are flocking to rival services like SnapChat, WhatsApp and Line.
What’s more, FB stock may also get bogged down with the company’s lack of innovation. For the past year, it has launched a variety of flops, such as Poke, Graph Search and Home for Android. Maybe Zuck has lost his Midas touch?
Again, all these red flags are probably more long-term in nature. In the meantime, FB stock will probably get a boost from the surge in mobile advertising, as will other top networks like LinkedIn (LNKD), Twitter (TWTR) and Yelp (YELP).
But if Zuck wants to make sure his company is thriving for the next ten years, it won’t be easy.
Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.
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