The knee-jerk reaction to the Facebook (FB) news was alarm. When a third-party report published in late January reported that the number of young Facebook shrank over the last three years, FB stock immediately began to lose value.
Fortunately, it only took Facebook stock owners a few days to realize the site wasn’t careening off of a cliff. Indeed, the shift in Facebook demographics may actually play into the company’s hand.
Facebook Demographics, Then and Now
The good news for FB stock investors is that, according to iStrategyLabs, the number of overall Facebook users grew tremendously in the U.S (the most important market thus far) over the last three years. The number of Facebook users in the states now stands at 180 million, up nearly 23% since 2010.
Facebook demographics are simply shifting, as the social network site saw particularly strong growth in the 55-and-up age group (+80%) for the same time frame. Plus, the 41% increase in the crowd of Facebook users ages 35 to 54 wasn’t too shabby either.
The bad news for anyone who owns FB stock was that 6.7 million teen and younger-twenties Facebook users were lost during the same three-year span. The decline in the number of 13-to-17 year-olds active on the site was especially concerning, at a hefty 25% drop; that headcount fell from 13.1 million to 9.8 million.
The loss in numbers of 18-to-24 year-olds was a less dramatic 7.5%. But considering this was once the biggest slice of the Facebook demographics pie, even a small slide is a big deal here. This sliver of Facebook users slumped from 45.4 million then to 42.0 million now. Heck, there are now more 25-to-34 year-old active Facebook users … a group that stands 44 million strong. Even more amazing is how the biggest active Facebook demographic active is the 35-to-54 crowd, with 56 million members.
But still, to lose 6.7 million of your most important demographic? That can’t be good for the value of FB stock, right? Well, the answer may not be what you think.
The Facebook Users That Really Matter
Contrary to popular belief, consumers (and Facebook users) between the ages of 13 and 24 aren’t the biggest spenders. Indeed, they’re usually the weakest spenders, with most of them being unemployed and/or underemployed.
Instead, their importance to marketers is their ability to be vocal and blunt, particularly online, which can at times make them an important marketing tool. Consumers in this age bracket are also notoriously fickle, however, and targeting them can sometimes be fruitless … and occasionally dangerous.
So who’s spending online, and presumably responding to online advertising? Broadly speaking, the people with money to spend. Specifically, folks over the age of 25 make for a better market to target. The 25+ crowd, in fact, is estimated to generate at least 90% of e-commerce activity.
Yes, this is the same Facebook demographic that expanded dramatically since 2010. So from an advertiser’s perspective, it’s actually reassuring that Facebook isn’t wasting ad dollars on a 13-to-24 crowd that’s probably not going to buy anything.
Besides, it’s important to consider what sites young Facebook users are switching to. A few of the top social media outlets? WeChat, Twitter (TWTR), SnapChat and Instagram in many ways perform the same function as Facebook. Oh yeah, and Facebook owns Instagram.
In retrospect, Mark Zuckerberg’s decision to spend $1 billion on the teen-friendly photo-sharing site in early 2012 was sheer genius. Its active user base reached 75 million daily users late last year … and that number doubles when talking about monthly users. Though details of its active members as well as revenue attributable aren’t laid out in Facebook’s quarterly report, some industry experts believe Instagram’s advertising platform could generate $340 million in revenue this year.
Bottom Line for FB Stock
All things considered, worries that FB stock is doomed because of shifting Facebook demographics are simply overblown. For proof of that idea, one only has to look at last quarter’s results. Sales were up 63% year-over-year, with per-share income jumping over 80%. And Facebook absolutely knocked it out of the park with mobile advertising. More than half of the company’s revenue came from mobile ads – up from 23% for the same quarter a year ago.
And while some of that ramp-up in revenue can be chalked up to the growth in Facebook users in the 24-and-up crowd, the bulk of the improvement is attributable to the site’s ability to charge higher prices for ad insertions. Advertisers paid 29% more per click from a Facebook ad in 2013 than they did in 2012, according to a recent Adobe System study, while Facebook itself said its price for an ad impression at the site grew by 92% in the fourth quarter.
Connecting the dots, advertisers seem to like the higher average age of Facebook users, as it means they’re more apt to spend … a situation those advertisers are willing to pay a premium for.
It’s true that, with 180 million U.S. users and 1.2 billion Facebook users worldwide, the site will effectively be hitting a saturation wall in the foreseeable future. But the slowdown in quantity of Facebook users appears to be offset by an improvement in the quality/profitability of users.
Moreover, it’s pretty clear now that Facebook realizes the power of stratifying its various demographics (mobile, computer, Instagram, Facebook, U.S., non-U.S., and a wide variety of shopping history for each user, etc.), it’s going to continue fine-tuning its ability to produce good results for its advertisers.
That ability to focus and better target ads is apt to bring more, and better, mainstream advertisers in the fold. In other words, Facebook isn’t following in MySpace’s footsteps — it’s just maturing.
And that’s why all this is, at the end of the day, great news for FB stock. The company is going to keep growing just fine for at least a few more years now that its advertising platform is fine-tuned.
More on Facebook’s 10th Birthday
- 20 Social Media Networks That Facebook Has Outlived
- Who Will Be the Facebook of 2024?
- Should You Buy FB Stock? 3 Pros, 3 Cons
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.