Stop Worrying About Teens on Facebook

When Facebook (NASDAQ: FB  ) first went public, investors were worried if it could effectively monetize mobile, which was experiencing rapid user growth, generating no revenue, and threatening to cannibalize Facebook's desktop-based business model. Now that 49% of Facebook's advertising revenue originates from mobile, those worries have been put to rest, and investors have moved onto newer concerns. This time, investors are obsessing over teenage engagement and the role Facebook plays in their lives. Ultimately, I'm confident Facebook will find a way to, once again, ease these concerns.

The $18 billion temper tantrum
By now, I'm sure you've heard that, during Facebook's third-quarter conference call, CFO David Ebersman told investors that, although usage among total U.S. teenagers remained stable on a sequential basis, the company experienced a decline in daily usage within its younger teenage demographic. His comments immediately erased shares' 15% post-earnings gain, translating to an $18 billion loss in market value.

If I had to guess, chances are pretty high that Piper Jaffray's recent survey, which showed that Facebook is decreasing in importance among teenagers, added some fuel to the fire.

Source: Piper Jaffray via Statista.

A little perspective, please!
First of all, we neither know exactly how big this subset of "young teens" is, nor do we have concrete drop-off figures to mull over. Realistically, I don't think it's statistically significant enough to matter at this time, because Facebook's total user engagement level continues to rise.

Sources: Facebook and author's calculations.

By tracking the ratio of daily active users, or DAUs, to monthly active users, or MAUs, an investor can get a good sense if Facebook's platform is converting occasional users into daily users, and whether overall user engagement is on the rise. As long as the ratio of DAUs continues increasing relative to MAUs, there's little for investors to worry about here, because a more-engaged user base provides Facebook with more revenue-generating opportunities.

Getting back to the Piper Jaffray survey, it isn't nearly as bad as the headline reads, considering that Facebook owns Instagram! Combine the two entities, and Facebook's total relevancy among teens only declined by 8% in total, putting it well ahead of the competition. Although this is something to keep an eye on going forward, it reinforces the notion that Facebook likely made the right choice to fork over $1 billion to buy Instagram.

It comes with the territory
No company can fully escape investors' worries, whether they are about earnings, the economy, or teenage engagement. At the end of the day, the greatest businesses are the ones that can adapt to threats, and turn them into new opportunities. Judging by Facebook's ability to take the challenge of mobile and turn it into a massive opportunity, I'm confident that Facebook is one of the greats, and management will find a way to deal with the potential issue of teenage engagement.

Got iPad?
Facebook's growing its mobile users on the ever-expanding smartphone and tablet markets. Apple's newest iPad Mini with Retina display might be hard to come by this quarter, given all the reports of supply constraints. Well, we're going to be sure to get a few -- and give them away! That's right: For the first time ever, The Motley Fool is hosting a contest where you can win a free iPad Mini with Retina display. All you have to do is tell us why you love The Motley Fool by clicking here! We'll pick the three most Foolish submissions to receive a free iPad Mini with Retina display.

See full terms and conditions by clicking here.

Read/Post Comments (1) | Recommend This Article (2)

Comments from our Foolish Readers

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 November 01, 2013, at 8:38 PM, lojikfool wrote:

    Steve, in the bar chart Fall 2012 adds up to 90% and Fall 2013 adds up to 79%, there are reasons why this might be the case but it does not seem right given the taper down to Google+, either way the bar chart is either erroneous or very misleading.

Add your comment.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2710090, ~/Articles/ArticleHandler.aspx, 9/26/2016 9:54:07 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated Moments ago Sponsored by:
DOW 18,122.63 -138.82 -0.76%
S&P 500 2,150.61 -14.08 -0.65%
NASD 5,264.10 -41.65 -0.78%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

9/26/2016 9:39 AM
FB $127.20 Down -0.76 -0.59%
Facebook CAPS Rating: ***
AAPL $112.35 Down -0.36 -0.32%
Apple CAPS Rating: ****