Has Facebook Become Too Popular?

In Facebook's (NASDAQ: FB  ) third-quarter conference call, CFO David Ebersman pointed out that the company "did see a decrease in daily users specifically among younger teens." That sentence immediately sent the stock down, despite good earnings results. Now, a study published earlier this month called the "Global Social Media Impact Study" found that Facebook is "dead and buried" among teenagers in Europe.

With Twitter (NYSE: TWTR  ) , Instagram, Snapchat, and WhatsApp providing popular alternatives for teens, Facebook is seeing its engagement with teenagers diminish. Perhaps that's why Google (NASDAQ: GOOGL  ) reportedly made bids on three of those four, and the same reason why all three rejected its bids. At the same time, the trend begs the odd question, "Did Facebook become too popular?"

The biggest reason teens are ditching Facebook
Teenagers are fickle beasts. The study found "the most seminal moment in a young person's decision to leave Facebook was surely that dreaded day your mum sends you a friend request." If your parents do something, it's almost automatically "uncool."

Note that the exodus is not because of any technical abilities that Facebook lacks. In fact, the school children surveyed for the study admitted that Facebook, in many ways, is better than Twitter or Instagram. It also says that it's not because of privacy policies at Facebook, which is what Snapchat touts over the competition. The biggest reasons teens leave Facebook is because their parents can check up on them.

So, Facebook finds itself with an aging user base. Is that really such a bad thing? In the near term, absolutely not. In the longer term, maybe.

Near-term benefit
In the near term, Facebook stands to gain from its older user base for one key reason: Older people generally have more money. The most valuable demographic is users in their 20s and early 30s, although users between the ages of 35-54 slightly trail young teens. Still, the gap is small, and the increasing familiarity of the demographic with e-commerce improves the chances of the older generation quickly increasing in value. In fact, older women are already more valuable to advertisers than their teenage daughters.

In the near term, Facebook's average cost per thousand impressions, referred to as cost per mille, or CPM, should continue to improve as its user base ages.

Where are teens going?
As teens reportedly flee to parent-free networks, Twitter is among the companies seeing the benefit. The company's stock has been on a roll since its IPO, reaching as high as $74 before falling to $63 at the end of last week. It went on a tear after the GSMI study was released. Still, Twitter has far from saturated its market with just 232 million active users.

More importantly, teens are utilizing another group of apps that have proven to be more effective than the all-in-one solution provided by Facebook. WhatsApp is better for messaging friends, and instead of advertising to its users, the company charges a nominal subscription fee. The business model capitalizes on the relative expense of text messages.

Both Facebook and Google have apps that mimic the functionality of WhatsApp, but they haven't proven nearly as popular. Google reportedly offered $1 billion for the company back in April after admitting last year that messaging is a gaping hole in its mobile strategy.

Snapchat is popular for contacting close friends, according to the study, but if a photo is worth sharing for more than 10 seconds, younger users typically upload it to Instagram, which is owned by Facebook. Facebook and Google each, reportedly, made offers to Snapchat.

In effect, Facebook's social graph has been compromised by the phonebook in teenagers' smartphones. What was once its biggest advantage in connecting people has been marginalized for the younger mobile-first audience.

Is Facebook in trouble?
Not really. The long-term effect of teens using Facebook less is unclear, but I believe that its usefulness will outweigh its diminishing "coolness." It's likely teens will flock back to Facebook after they go away to college or get jobs and begin to miss the friends they used to see in person every day.

Losing teen engagement doesn't seem as catastrophic as analysts have made it out to be -- at least for now. Until people in their 20s and 30s start abandoning Facebook -- i.e., these teens don't return -- Facebook should continue to thrive.

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  • Report this Comment On January 01, 2014, at 8:22 PM, mods0623 wrote:

    WHY IS EVERY ARTICLE YOU WRITE OVER THE PAST MONTH ABOUT FB DOWN ON TEEN USERS?

    TEENS ARE THE LEAST RELIABLE AND LESS CONSISTENT AS THEY GROW.

    EVERY PRODUCT HAS FB AND TWITTER ENGRAINED IN THIER PACKAGING.

    THESE TWO ARE NOT GING ANYWHERE SOON. OR UNTIL THE BILLION PEOPLE FIND ANOTHER SOCIAL NETWORK.....GUESS THEY'LL HAVE TO MAKE ANOTHER MOVIE SOME DAY

  • Report this Comment On January 02, 2014, at 3:40 AM, Marlm10 wrote:

    Here is the thing....FB is still number one and it will remain to be....they are making money and that is the bottom line! As far as teenagers, yes they are fickle but from elementary, Junior high, high schools and on up....almost every kids knows about FB, uses FB at school and socializes on it to stay connected with friends and family. Even if their are less teenagers WHO CARES!!! Teenagers are not the ones buying and purchasing ads...they are the parents, the business owners, etc. This is why FB is making money!! People with jobs are spending money on FB not the teens!! Twitter on the other hand...with 140 characters....that does not say much! I already went over the 140 just writing this!! I have a twitter account but most that are on it are either fake accounts or not active! Even when I tweet or tweet friends it taked them forever to reply or not even reply! But when I FB....it s split second I get a LIKE button or comment!! FB is still on FIRE and will hit $75!! TWTR has more to grow but as of now they are not making money...they are spending more than they make! TWTR is only worth $10 at best!! MAJOR DOWNGRADE and a SUPER STRONG SELL!!!!!!!!!!! SELL TWTR tomorrow and cash out because this is CRASHING like the TITANIC!!!! GET OUT WHILE YOU CAN!!!!!! To me TWTR is worse then hearing if the Feds will taper or not!! TWTR is CRASHING donw to reality and the GREEDY will get trampled so SELL TWTR while you can!!!!!!!

  • Report this Comment On January 02, 2014, at 7:33 AM, Matt8265 wrote:

    FB market cap 140B - TWTR market cap 35B. Figure it out.

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