The latest report by eMarketer on social media usage shows that Facebook, Inc. (NASDAQ:FB) is losing younger users and that’s got me wondering what it means for FB stock.
Is the fact Facebook is projected in 2018 to lose 5.6% of its users aged 12 to 17 and 5.8% of users aged 18 to 24 — the first time in its history it’s lost users on an annual basis in any age group — a reason for owners of FB stock to head to the sidelines or confirmation that Facebook is for old people?
Personally, I believe it’s the latter; it shouldn’t cause Facebook shareholders to lose any sleep about their investment.
Everything Else Is Solid with FB Stock
InvestorPlace’s Lawrence Meyers recently discussed Facebook’s amazing metrics.
“Daily active users (DAUs) in Q4 reached 1.4 billion, up 14%. This number represents approximately 66% of Facebook’s 2.13 billion monthly active users (MAUs) in Q4. MAUs increased 269 million or 14%,” wrote Meyers February 9. “Full-year 2017 revenue grew 47% to over $40 billion, along with $17 billion of free cash flow. Q4 revenue was $13 billion, up 44%. Q4 total ad revenue was $12.8 billion, up 48%. Mobile ad revenue was $11.4 billion, up 57%.”
As if that weren’t enough, Meyers reminds readers that the average cost of a Facebook ad increased by 43% in Q4 2017, suggesting that Mark Zuckerberg and company haven’t lost any pricing power despite losing some of the younger set.
The most significant concern in Meyers’ opinion is the possibility that Facebook’s numbers are significantly lower than the company estimates. That would indeed be a devastating blow to FB stock, which has had a nice run since the first few months after its 2013 IPO.
However, the kind of companies that spend big money advertising on Facebook, apparently believe it’s the real deal or they wouldn’t be paying 43% more for the same ad.
Keep an eye on this, but for now, I’d consider the subject nothing more than a molehill.
Is Facebook Inc. Really Losing Young People?
According to eMarketer, Facebook will lose two million users under the age of 24. However, Instagram, its social media stablemate, is projected to gain 1.6 million users in this calendar year, meaning Facebook’s real user loss under the age of 24 is 400,000, a much more palatable attrition rate.
Snap Inc (NYSE:SNAP) is projected to add 1.9 million users in 2018 that are 24 or younger, 300,000 greater than Instagram. Facts are facts. Snapchat has more users than Instagram between the ages of 12 and 24.
Like Facebook, Snapchat faces a potential dilemma as it grows.
“Snapchat could eventually experience more growth in older age groups, since it’s redesigning its platform to be easier to use,” eMarketer principal analyst Debra Aho Williamson said. “The question will be whether younger users will still find Snapchat cool if more of their parents and grandparents are on it. That’s the predicament Facebook is in.”
Facebook Making Changes to Appeal to Younger People
I recently discussed why Facebook is doing the right thing by making its news feed less commercial and more user-friendly.
In the short term, it could lose some revenue, but in the long-term, providing a better experience for Facebook users who aren’t defecting to Instagram or Snapchat will only improve the social media platform’s engagement effectiveness.
By doing what it’s doing with its news feed, Facebook is providing people of all ages two social media platforms they can enjoy using.
Long-term, that’s money in the bank for owners of FB stock.
Bottom Line on FB Stock
The Mark Zuckerberg’s and Jeff Bezos’s in this world are few and far between. When either of these men makes a big move that seems puzzling to investors; that’s a sign they’re on to something.
Counterintuitive leadership works. Zuckerberg and Bezos know it, and I think most investors realize it, too.
If Facebook falls into the $160s, as Meyers suggests, you should back up the truck and buy as much FB stock as you can comfortably afford.
If you have a 3- to 5-year hold, I wouldn’t have a problem recommending its stock where it currently trades around $175.
As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.