Facebook: Already Dead to Teenagers in the U.K.

It may not come as a surprise that Facebook  (NASDAQ: FB  ) has a teenager problem, especially in the more developed U.S. market. But the degree of that problem, as outlined in a recently released U.K. study, should shock even the most bullish of investors. Not only did the research find that Facebook has issues with teenagers, it found that teenagers in the U.K. find the site an embarrassment to use. 

Facebook's monetization in Europe greatly lags domestic rates. If teens are ditching the site in droves, Facebook might have a difficult time monetizing the site in the U.K. and other countries. In no big surprise, teens are moving to SnapChat, WhatsApp, Instagram, and Twitter  (NYSE: TWTR  ) to fulfill the social functions once dominated by Facebook. 

While Facebook is quickly losing the attention of teens around the world, it doesn't preclude the site from being a meaningful utility for family members and distant friends to remain connected. The appropriate valuation becomes a big issue if it transitions into a utility. While everybody frets over these social media valuations, the best way to invest in Twitter -- and maybe Facebook -- is GSV Capital  (NASDAQ: GSVC  ) . The investment fund currently has a substantial 1.9 million-share position in Twitter that was originally purchased at around $17. 

Dead to teens
Only during the last earnings call did Facebook admit that a teen issue existed. But it's already a reality, at least in Europe. Investors need to be careful paying nearly 20x revenue for a stock when the original such an important demographic of the service considers it nothing more than a utility to connect with annoying parents. 

The study by the professor at the University College of London found that teens 16-18 consider the site embarrassing to use for many reasons, including the growing involvement of parents. The teens prefer to use Snapchat to connect with the closest friends, WhatsApp to communicate with close friends, Twitter to communicate with a wide group, and Instagram to include a wider net of people, including strangers. 

Utility function
In all likelihood, the new social sites popular with teens will never completely replace Facebook. Teens might even encourage interaction with parents on Facebook to prevent them from migrating to the new social sites. The leading social site might have a long future in the form of a utility that is a grab bag for all connections that don't fall into other more specialized sites. 

How much will a utility be worth? One could quickly suggest that Yahoo! has become an Internet utility with services such as mail, news, and even search that has held onto a wide user base for years now. Yahoo! though is only worth $41 billion based partly on very valuable Asian assets. Last year, the company was only worth around $20 billion. As a utility, Facebook's stock might see a dismal future considering those valuations for Yahoo!.

Twitter
While Facebook continues to struggle with teens, Twitter has become a more popular place for them to hang out. Twitter allows for a greater connection with the world, including the ability to better follow the celebrities, entertainers, and athletes that teens admire. The one-to-most nature of Twitter might provide a more long-term enduring social site. 

The Twitter valuation is absolutely scary, making GSV Capital an interesting investment opportunity. With Twitter now worth around $45 billion fully diluted, or roughly 40x next year's sales, the stock is very expensive.

GSV Capital provides a solution to buying Twitter at a substantial discount to current market prices. The investment fund owns 1.9 million shares of Twitter now worth nearly $130 million. At the end of the third quarter, GSV listed the net asset value at $13.16 with Twitter valued at only $23, or a position only worth $45 million. The gains in Twitter alone would add $85 million to the fund and value it at more $17, while GSV trades for around $12 now. 

Bottom line
The teen issue at Facebook is apparently getting worse and spreading around the globe. The site has the ability to remain a viable utility, but the valuation will take a significant hit in that scenario.

Twitter is the only teen favorite that is independently public. With the sky-high valuation, GSV Capital might be the smart way to play the social media craze with the fund trading nearly 30% below net asset value. 

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Read/Post Comments (6) | Recommend This Article (1)

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 January 10, 2014, at 3:44 AM, Mcjenson123 wrote:

    don't you think this is old news...by now.

  • Report this Comment On January 10, 2014, at 3:53 AM, alexander774 wrote:

    What kind of ridiculous article is this?, Facebook is becoming into a whole new beast, and only growing bigger as the months pass by, and has become more of a necessity then a trend. And yes kids and teens losing favor for it, while College students and adults who actually have money are running at Facebook in massive amounts.

    So in other words Facebook is moving up from the kids section to the adult sector. Also lets not forget Facebook also owns Instagram, and last time I checked every teen is addicted to it.

  • Report this Comment On January 10, 2014, at 7:49 AM, Matt8265 wrote:

    I'm 55. FB is dead, TWTR is the new Google.

  • Report this Comment On January 10, 2014, at 7:52 AM, Matt8265 wrote:

    TWTR stock is expensive? ... Is this based on the price per share or the market cap? ... FB's market cap is 140 Billion with TWTR's market cap at 32 Billion. ~ I have no idea why no one in the world of finance doesn't look at the value vs. the cost.

  • Report this Comment On January 10, 2014, at 8:04 AM, WaldenGG wrote:

    It is old news and from the looks of it, this is a sponsored article.

    They seemed to be promoting "GSV Capital" fund as a way to invest, and seemed to be TWITTER is the stock choice of the fund.

    Obviously a biased article.

    I've wasted my time reading this.

  • Report this Comment On January 10, 2014, at 9:16 AM, secularinvestor wrote:

    This survey is somewhat misleading.

    GlobalStats shows Facebook’s continued domination of European Social Media web usage. (The countries covered by this report were European) with 69.3% web usage share, compared Twitter’s 7.2%, Tumblr’s 11.8% -

    The above numbers include PCs. However, the BIG GROWTH AREA is iMOBILE SHOPPING (smartphones and tablets), which according to IBM has accelerated to account for 48% of all internet shopping).

    Facebook has INCREASED its mobile web usage share very strongly over the last 3 months, from 64.5% in September 2013 to 77.86% today, while Twitter’s share has DECLINED over the same period from 25.44% to 13.16%

    IBM’s data shows that by far the most important growing advertising market for shopping is Mobile, and Facebook is rapidly increasing its dominance of this mobile market

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