Why Facebook Inc. Can Overcome a Decline in Teen Use

The rumors of Facebook's demise seem to have been greatly exaggerated. At least, according to new research. Find out why Facebook investors don't need to worry about minimal declines in Facebook use among teens and young adults.

Jul 4, 2014 at 3:00PM

Facebook (NASDAQ:FB) is on a roll. A recent report by Forrester Research shows how the demise of the social media giant was greatly exaggerated when researchers from Princeton dubbed it the next MySpace and predicted it would lose 80% of peak users by 2017.

Forrester's data revealed that the percentage of teens using the service did drop from February 2013 to November 2013, but only slightly. According to comScore, 88.6% of those 18-24 years old used Facebook in November of 2013, while 91.5% used it in February 2013.

The nearly three-percentage-point drop is a concern, but far from catastrophic. 


Before, during, and after the much-publicized decline, Facebook did three things that should quiet its critics and more than offset gradually declining young adult and teen usage. 

Facebook purchased Instagram
In April of 2012, Facebook had the foresight to purchase Instagram for $1 billion -- $300 million in cash and the remainder in Facebook stock. According to Facebook's last earnings call for Q1 of 2014, Instagram hit the 200 million mark for monthly active users, or MAUs, in March of 2014. That's a substantial jump from the 22 million MAUs it had in when acquired in 2012. By comparison, Facebook has 1.28 billion MAUs as of the Q1 2014 earnings call. 

In April of 2014, Instagram brought in another 85 million unique visits in the U.S. alone. It also has a higher engagement per follower than either Facebook or Twitter (NYSE:TWTR). It has 50 times more engagement than Facebook and 120 times more than Twitter, according to Forrester. 

Facebook has already shown that it knows how to monetize its own network by selling ads, but has yet to generate any ad revenue from Instagram. Look for it to do do so in the future. This will add another revenue-generating channel to Facebook and increase the value of the company.

Facebook also purchased What's App
Facebook also put down a great deal more for What's App -- 19 times more, to be exact. The messaging platform had 450 million active users at the time, mostly overseas. According to co-founder Jan Koum's blog, it now has more than 500 million active users, who are sharing 700 million photos and 100 million videos. Overseas locations, including Brazil, India, Mexico, and Russia are adding subscribers the fastest.

The goal of reaching 1 billion users looks more than within reach, but don't look for What's App to upend its core principles -- which includes no ads. For now, Zuckerberg is allowing the founders to operate independently and stick to their fast, cheap, ad-free messaging. But, even so, at a dollar a pop for a one-year subscription, What's App can bring in $1 billion a year in revenue via its subscriber-based model.

Facebook plans to use Google-like ad targeting to bolster its ad sales 
Facebook is also set to improve its advertising and sell more ads by gathering more data on users. It announced it will now track users' web- and app-browsing habits to better help its advertisers target potential customers.

Facebook currently presents ads based on shares, post likes, and page likes that take place on Facebook's network. However, now Facebook will also use its users' browsing history through third-party apps and other sites to improve targeting of ads to users' feeds. Even though privacy advocates are raging against the new policy, don't look for many users to opt out, even though they can. Google (NASDAQ:GOOG) (NASDAQ:GOOGL) already does this type of targeting and has proven that it's effective, even with hardcore opposition from a small segment of users.  

A Fool has his reasons
While Facebook is a polarizing company for investors, if you weigh all the facts and data, it is a solid buy at the moment. Its upside potential outweigh concern over its demise with young users.  There is no guarantee it will avoid hitting a snag or being toppled from its social media throne, but for now and the foreseeable future, it looks to be the king of social media revenue generators. 

Leaked: Apple's next smart device (warning, it may shock you)
Apple recently recruited a secret-development "dream team" to guarantee its newest smart device was kept hidden from the public for as long as possible. But the secret is out, and some early viewers are claiming its everyday impact could trump the iPod, iPhone, and the iPad. In fact, ABI Research predicts 485 million of this type of device will be sold per year. But one small company makes Apple's gadget possible. And its stock price has nearly unlimited room to run for early in-the-know investors. To be one of them, and see Apple's newest smart gizmo, just click here!


Chris Brantley has no position in any stocks mentioned. The Motley Fool recommends Apple, Facebook, Google (A shares), Google (C shares), and Twitter. The Motley Fool owns shares of Apple, Facebook, Google (A shares), and Google (C shares). 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.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't 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.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information