It’s not exactly news that Facebook Inc (NASDAQ:FB), largely created back in 2004 to cater to the college-aged crowd, is losing its luster with that demographic. As Facebook has expanded its base to users of all ages, kids are bumping into their parents on the social network. Not cool.
It’s a phenomenon that’s not been all that quantified — or even quantifiable — until recently. But eMarketer refreshed the few numbers we ever hear on the matter earlier this week, and FB stock-holders are anything but thrilled. The all-things-digital-marketing news venue reckons that Facebook will lose 2 million users under the age of 25 this year, with most of them defecting to Snapchat, a rival social networking app owned and operated by parent company Snap Inc (NYSE:SNAP).
On the surface it seems troubling. Young people live a huge part of their lives online, and presumably spend the most money online. And, there’s some truth (sort of) to the assumption. The loss of teenagers and the 20-something crowd, however, may not be the deathblow some are making it out to be.
Downside for FB Stock
Yes, Facebook isn’t drawing young people the way it used to. Its Instagram is gaining followers from that demographic. But Snapchat is anticipated to do better on that front, expected to add 1.9 million sub-25-year-olds this year.
But does this group actually spend enough money online for advertisers to care?
It’s a complicated question with conflicting answers.
The downside that FB stock-holders see in the shift is these kids have a surprising amount of disposable income. That’s money Facebook won’t easily get. Numbering 26 million in the United States alone, they earn an average of anywhere between $3,000 and $5,000 per year. And unlike their parents, that income isn’t largely spoken for paying bills.
And they do spend money online. Generation Z, which is defined as consumers born between 1995 and 2012 (making them between 5 and 24 years old now), typically spend around $1,200 per person per year online. The next-higher age group, generation Y, are the biggest online spenders, shelling out nearly $2,000 per year online. Those 25- to 40-year-olds — or at least the younger portion of that group — aren’t exactly in a committed relationship to Facebook either, and could be swayed by Snapchat as it matures.
Plus, this demographic is simply greater in number than other age-based stratifications.
Not All Is Lost for FB Stock
That doesn’t mean all is lost for Facebook, however. Not even close.
For starters, about three-fourths of the nation’s adults who make $50,000 or more per year still use Facebook on a regular basis. And, they still spend money online — well over $1,600 per year in many cases. For perspective, only 18% of adults who earn between $30,000 and $50,000 per year use the microblogging platform offered by Twitter Inc (NYSE:TWTR). Facebook’s Instagram, which is essentially a Snapchat copycat, doesn’t sport materially better age and income metrics.
And, like it or not, those older consumers are getting more comfortable with e-commerce. A little more than a third of consumers enrolled in the Prime service offered by Amazon.com, Inc. (NASDAQ:AMZN) are 55 and older. Only about 30% of the 18-to-30 crowd in the U.S. are Prime members.
The matter isn’t as black and white as some interpretations of the recent eMarketer report would suggest.
Sure, Facebook would love to get and keep these younger people in the fold. The fact is, however, it can live without them. Indeed, it may want to live without them. If it tweaks its messaging and delivery of ads — and as more older people get comfortable with the idea of online shopping and digital products — Facebook could find the 25-and-older crowd is the one actually worth catering to.
In the meantime, Facebook’s Instagram isn’t doing too poorly with the teen crowd itself.
Bottom Line for FB Stock
Don’t dismiss the adverse impact of the dynamic entirely. Today’s teens are, metaphorically-speaking, tomorrow’s 30-somethings. And those future high-earning middle-aged people may become uncool, but they’ll have more money to spend than any other segment of society. If Snapchat can somehow get them hooked now and keep them interested for two or three decades, that presents a huge problem for Facebook, and by extension for FB stock.
Somehow though, it seems unlikely that anyone in their 40s and 50s is going to have the time or inclination to take photos and make films of their entire lives, embellish them with digital stickers, and watch their friends do the same. Most older adults have too little free time and too little desire to play with those kinds of online toys. Never even mind the fact that this is the world of the web, where change happens fast, and unexpectedly. Nobody really knows what will click with consumers — young or old — 20 years from now.
That’s the long way of saying don’t let the eMarketer report alone prevent you from stepping into FB stock. This is a fuzzy matter, at best.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can follow him on Twitter, at @jbrumley.