Why Teens Won’t Decide the Fate of Facebook

There has been an ongoing exodus of teens away from Facebook. Will Twitter and Google allow Facebook cope with the exodus of teens?

Feb 12, 2014 at 9:00PM

Facebook (NASDAQ:FB) has spent countless dollars evolving a social media site with characteristics desired by all social groups. Unfortunately, there has been an ongoing exodus of teens away from the social media giant. The development has prompted some experts to call for the sale of the stock. On the contrary, the exodus of teenage users won't affect the company in the near term. Facebook will still grow due to three crucial revenue drivers. Its Instagram and online video advertising business, along with the mobile sector, can generate enough revenue to mitigate the exodus of teens in the short term.

The prospects in Instagram
Facebook's Instagram monetization initiative has been a great move for the company. The network now has more than 180 million monthly active users. Instagram recently released a product that allows users to send photos and messages directly to one another. Video usage rose after Facebook allowed users to upload videos a year ago. In the fourth quarter, Facebook's average revenue per user, or ARPU, was $1.31. If Instagram can achieve an ARPU of $0.65 in a quarter based on the present number of monthly active users, it will be able to generate more than $500 million in annual sales.

Online video advertisement as a growth driver
Facebook is expected to begin video ads for its advertising campaign. With daily visitors of more than 755 million, Facebook's huge data set about its users has the potential to generate substantial revenue. The company intends to reach targeted demographic groups, and the initiative will attract new advertisers. Under an optimistic scenario, video ads can bring more than $1 billion into the company's coffers.

The mobile advertising sector
Facebook's recent performance does not indicate it has been severely affected by a shrinking teen user base. The company saw revenue growth in 2013 due to its success in the mobile sector. It increased its daily active users to 556 million by the end of 2013, up 49% from the same time in the year prior. The tweaks to the way ads appear on Facebook's News Feeds for mobile devices enabled the company to reap higher engagement and financial results. Facebook's mobile usage is growing at a rapid rate. The company's fundamentals are following suit.

Competitors
Google (NASDAQ:GOOGL) is Facebook's online advertising rival. Through its YouTube subsidiary, Google has a significant proportion of the online video ads market. Estimates put the company's online video ads revenue at roughly $5.6 billion in 2013. According to eMarketer, the online video advertising market in the U.S. is expected to grow from $4.14 billion in 2013 to $9.06 billion in the next four years. YouTube recently launched a new initiative to help channel creators bring in new fans. Ultimately, it could enable Google to get a significant amount of the future online video advertising revenue.

Twitter (NYSE:TWTR) has a lot of teenage users. However, only a tiny portion of them left Facebook for it. Twitter has a strong foothold on the mobile sector. It recently launched a UK alert service for emergencies. In fact, more than 75% of Twitter's 232 million users access the site through mobile devices. Consequently, the company earns 70% of its advertising revenue from its mobile division. It should earn more from the mobile sector due to the future trend in the market.

Conclusion
Though Facebook is faced with a shrinking base of teen users, the development won't affect the company in the near term. Its Instagram and online video advertising sectors can generate a substantial amount of revenue to make up for the loss of teen users. Additionally, Facebook's mobile advertising division will enable the company reap higher engagement and financial results in the short term.

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Mark Girland has no position in any stocks mentioned. The Motley Fool recommends Facebook, Google, and Twitter. The Motley Fool owns shares of Facebook and Google. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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