The Users That Facebook Hates

Facebook (Nasdaq: FB  ) must hate some of its users. At a time when all eyes are on the company's top and bottom lines amid its overhyped IPO and subsequent plunge, down a third of its value from the offering price, the pressure is on.

Mark Zuckerberg made it clear in his letter to investors that Facebook was never started to be a company. Facebook has always been on a "social mission" and the dollars have always been secondary. Zuckerberg has always maintained that the company isn't in it for the money. As fellow Fool Morgan Housel put it on Facebook's first public day, "Well, the money's in it for you, buddy."

Well, when it comes back to the issue of user monetization, some Facebookers simply aren't carrying their weight. I've already outlined how both of Facebook's primary revenue sources are at risk, but let's dig a little bit deeper into the numbers.

Look at Facebook's payment platform revenue, the majority of which comes directly from social gamer Zynga (Nasdaq: ZNGA  ) . And just like Zynga, a disproportionately small number of users actually pay up, boosting average revenue per user, or ARPU, for the rest of us.

In 2011, Facebook had just 15 million users who purchased virtual goods using Facebook Payments, and it didn't disclose that same figure for the first quarter. On the surface, that sounds great compared to the five million who paid up in 2010 (200% growth!), but it's still a drop in the bucket relative to the 845 million monthly active users, or MAUs, that Facebook had at the end of 2011.

That means only 1.8% of Facebook's MAU base carried payments revenue last year, which is roughly on par with the 1.9% paying portion of Zynga's user base.

A recurring theme that Facebook can't escape lately is its mobile Achilles' heel. You're likely well versed in this storyline by now, so I'll try not to belabor the point. Instead, let's look at what that means for Facebook's numbers.

The core advertising business alone brought in $872 million last quarter with 901 million MAUs. If you back out the 83 million MAUs who access Facebook exclusively on mobile devices and effectively aren't monetized, that turns out to about $1.07 in average advertising revenue per user. As mobile-only users continue to increase as the company expects, the pressure to monetize mobile news feeds will keep growing.

So mobile-only users currently contribute to neither advertising nor payments revenue, since Facebook's platform is desktop-based. On top of that, they're continuing to grow their ranks as Facebook beefs up its mobile offerings.

If Facebook doesn't hate them, it sure hates to love them.

Facebook's monetization strategy leaves a lot to be desired, but there's another social-media player that went public recently whose business model is on a solid growth trajectory. Here's the social-media tech IPO that you should be buying because it doesn't rely on the fickle advertising market to bring in dollars. Grab a free copy of this report for more info.

Fool contributor Evan Niu holds no position in any company mentioned. Click here to see his holdings and a short bio. The Motley Fool owns shares of Facebook. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

Read/Post Comments (8) | Recommend This Article (14)

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 07, 2012, at 1:48 PM, Brent2223 wrote:

    Wow, that's gotta be attractive to advertisers - targeting advertisements to a population where 98% don't open their wallets. Of course probably 50% of that 98% haven't logged onto facebook in years. This whole idea of building up a user base and figuring out how to make money off of it later is kinda backwards I believe. No value to investors, no value to advertisers.

  • Report this Comment On June 07, 2012, at 2:49 PM, bottomfisherman wrote:

    Of the 900 million "unique" users how many people have multiple accounts, how many have accounts for their birds, fish or dog. If people are not going to click on ads I doubt if these animals are going to ha ha. Also how many people went on there once and never came back and are still counted in this total? I have read that FB has the lowest click rate for ads on the internet, that is because teens do not care nor have the money to buy anything.

  • Report this Comment On June 07, 2012, at 4:02 PM, stevedahnke wrote:

    The 'free rider' syndrome we learned about in high economics is biting $FB in the arse.

  • Report this Comment On June 07, 2012, at 5:32 PM, Calimesa wrote:

    I'm proud to be one of the hundreds of millions of pains to their (FB & Zynga) bottom lines and when they figure out how to monetize mobile I won't be helping them out there too. I discard all ads on my FB page and I quit using Zynga altogether when I found out that the owner was making jokes and laughing at all the suckers out there who spend real money to buy fake money or credits to play their games and their game didn't run good either. Now it's my time to laugh.

  • Report this Comment On June 07, 2012, at 11:28 PM, SmallPeter wrote:

    I wonder how many desktop users have ad blocking software incorporated into the browsers and never see ads on Facebook. I use an ad-blocker add-on to Firefox and I never see FB ads. Can they measure that?

  • Report this Comment On June 08, 2012, at 10:48 AM, ShockExchange wrote:

    Should Morgan Stanley Bankers Responsible For 'Facebook IPO Fiasco' Be Banned?

  • Report this Comment On June 15, 2012, at 12:58 PM, whyaduck1128 wrote:

    Any time that anyone says something like, "It's not about the money", it's about the money.

  • Report this Comment On June 15, 2012, at 3:11 PM, Andrejia wrote:

    Wow. "a disproportionately small number of users actually pay up"... I never pay for ANYTHING on / via FB. Didn't realize I was expected to. Don't I feel like an arse, sitting here thinking it was just some free online social media platform. Seems to me like a good time to jump off... most of the people I interact with at this point have already moved on to Twitter & Google+ anyway. Tell me again... why stay on FB?

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