Facebook Inc's User Metrics Are Discouraging

Facebook (NASDAQ: FB  ) remains a story of slowing user trends and surging monetization metrics. Wall Street likes to focus on revenue growth and the shift to mobile, but the real story is the peaking user base and limited growth in the developed world.

The social media giant now has 1.28 billion monthly active users, or MAUs. But the real issue is the engagement of those users. The news reports continue to suggest lower user engagement, especially in the younger crowds, but the headline numbers from Facebook don't necessarily match the reports.

The biggest issue is that Facebook doesn't provide engagement metrics showing average times spent on the site. To compare with Internet search giant Google (NASDAQ: GOOG  ) , the company continues to generate considerably higher user engagement, or paid clicks, while the monetization of those clicks declines.

Stalling developed country growth
The big problem not really explored by investors is that MAUs in the U.S. and Europe have peaked. The majority of revenue gains now are based on higher monetization of existing users. For the last year, MAUs in the U.S. have only grown from 195 million at the end of last year's first quarter to only 201 million now. The growth rate is now down to a paltry 3.1%. European growth is better at 7.4%, with the user base expanding by 20 million to reach 289 million users over the last year. Sequentially from the fourth quarter, the combined user base in Europe, U.S., and Canada only grew from 483 million to 491 million.

Source: Facebook

The main user growth continues to come from Asia, and especially India, where the user base has now reached more than 100 million. Those users, on average, generate less than $1, so it takes nearly five users in India to equal the revenue from one in the U.S.

For its part, Google saw paid clicks surge 26% in the first quarter even with quarterly revenue of more than $15 billion.

How long will user revenue growth last?

The question is whether the average revenue per user, or ARPU, will continue to surge similar to the first-quarter numbers. ARPU jumped from only $1.35 in the prior-year period to reach $2 in the last quarter. Every region saw strong growth, but the 67% growth in the U.S. and Canada region is what drove the advertising revenue surge.

That surge came primarily from placing ads in News Feed, leading to a substantial 116% gain in revenue per ad. In addition, the shift from mobile and away from ads on the right-hand side of desktops led to a 17% decline in ad impressions. Clearly, the company is getting better at delivering ads, but does that increase the likelihood of users staying engaged?

The existing CFO forecast a substantial deceleration in ad revenue growth by the end of the year. The shift in News Feed ads will face tougher comparables as the year goes along.

In the case of Google, the average cost per click decreased approximately 9% over the first quarter of 2013.

Bottom line
Based on the history of Google, a mature product can continue to grow user engagement, but ultimately the monetization of each user will decline. Unfortunately, Facebook is already facing slowing user engagement while monetization plays catch-up. The question is how far monetization can grow before it runs off users -- or at least leads to less user engagement.

Clearly, Facebook hopes that Instagram and Whatsapp will replace the eventual decline in the main traffic source. Whether a social media network can maintain an engaged user base long-term is still unknown. Google has the advantage of obtaining traffic from connecting users to businesses willing to pay for clicks.

Considering that users don't go to Facebook to connect to businesses, it's difficult to forecast a situation where MAUs on Facebook are larger in several years, knowing the history of social networks. That scenario should worry investors, with Google providing the playbook for what ultimately happens to monetization rates.

6 stock picks poised for incredible growth
They said it couldn't be done. But David Gardner has proved them wrong time, and time, and time again with stock returns like 926%, 2,239%, and 4,371%. In fact, just recently one of his favorite stocks became a 100-bagger. And he's ready to do it again. You can uncover his scientific approach to crushing the market and his carefully chosen six picks for ultimate growth instantly, because he's making this premium report free for you today. Click here now for access.

Read/Post Comments (4) | Recommend This Article (3)

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 May 11, 2014, at 4:47 PM, wesam wrote:

    Since no one bothered commenting on your article, I will be blessing you with a one.

    PLEASE stop writing

  • Report this Comment On May 12, 2014, at 10:29 AM, secularinvestor wrote:

    User metric discouraging? ..... WHAT TOTAL NONSENSE.

    In the last year Facebook grew its total number of users by 166 million. To put that in perspective, Twitter is Facebook’s main social media competitor. In the last year alone Facebook has grown by more than half of ALL Twitter’s users since it was launched 8 years ago!

    The author seems to think that it us a bad thing that most of Facebook’s growth came from outside North America. But most investor recognise that Facebook is a GLOBAL company and this gives Facebook much MORE OPPORTUNITY to grow revenue per users in Europe (where it is $67 per user), Asia ($21 per user) and the Rest of the world ($9) than in North America ($140 per user).

    Also the author fails to realise that Facebook has many other social media properties, all also growing their number of users.

    For example, Instagram is growing like wildfire, from just 30 million users when Facebook bought it to over 200 million users today i.e. over 600% in just two years. Instagram is goring so fast that it is already about to overtake Twitter in total number of users.

    Then there is Facebook Messenger which has also grown to over 200 million users, and is also about to overtake Twitter.

    Then there is WhatsApp which has grown its number of users by 50 million in the two months since Facebook launched its bid to buy it. i.e. WhatsApp already has nearly TWICE as many users than Twitter.

    Facebook has also just launched Paper and its number of users will probably exceed Twitter in the next year or two.

  • Report this Comment On May 12, 2014, at 10:37 AM, secularinvestor wrote:

    Also the author makes totally misleading comparisons with Google.

    The future of Internet advertising is mobile, which is still in its infancy. Facebook is growing its mobile revenues far, far faster than Google.

    According To Statista total Mobile advertising has grown from $8.7B in 2012, to $18B in 2013 and is forecast to reach $31.4B in 2014 i.e. 261% between 2012-2014.

    Google’s mobile Ad revenue has grown from $4.6B in 2012 to 8.9B in 2013 to a forecast $14.7B in 2014 , i.e. grown 220% 2012-21014 - i.e. Google HAS LOST mobile market share.

    Facebook’s mobile revenue growth has been far faster: from $0.5B in 2012, to $3.1B in 2013, to a forecast of $6.8B in 2014 i.e. Facebook has GROWN 1,260% - i.e. NEARLY FIVE TIMES FASTER THAN Google!

    Furthermore, there is mountains of data which show that Facebook enjoys far higher levels of engagement than Google+ and that advertisers obtain a far better ROI (Return On Investment) advertising with Facebook than with Google.

    As a result, because of increased demand Facebook has GREATLY INCREASED their mobile advertising rates, whereas Google has had to REDUCE theirs.

  • Report this Comment On May 12, 2014, at 10:56 AM, secularinvestor wrote:

    Facebook’s Daily Active Mobile users grew from 425 million a year ago to 609 million in Q1 2014 i.e. they grew more than 43% in just one year.

    Total Google+ plus users (Mobile + PC) is just 300 million - so Facebook’s mobile users alone are more than TWICE total Google+ users.

    At 1,276 million users Facebook has more than FOUR TIMES the users of Google+.

    So much for Facebook’s "discouraging” user metrics.

Add your comment.

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: 2947789, ~/Articles/ArticleHandler.aspx, 8/30/2015 6:33:56 PM

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...

Mark Holder

Mark has been writing for TMF since Dec. 2012 with a primary focus on taking advantage of opportunities provided by the market in the energy and tech sectors.

Today's Market

updated 1 day ago Sponsored by:
DOW 16,643.01 -11.76 -0.07%
S&P 500 1,988.87 1.21 0.06%
NASD 4,828.33 15.62 0.32%

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

8/28/2015 4:00 PM
FB $91.01 Up +1.28 +1.43%
Facebook CAPS Rating: ***
GOOG $630.38 Down -7.23 -1.13%
Google (C shares) CAPS Rating: ****