Facebook (META 2.73%) isn't cool anymore.
The social network lost nearly three times as many American teenagers in 2017 as originally anticipated by eMarketer. About 9.9% of U.S. users between 12 and 17 years old just didn't have time for Facebook by the end of the year. That compares to eMarketer's original expectations of a 3.4% decline in users in that demographic.
Facebook should be able to hold onto more young users this year, but eMarketer still expects it to lose about 2 million users aged 24 and younger.
Meanwhile, Snap's (SNAP 3.10%) Snapchat is expected to win over most of those users, adding another 1.9 million users in its core under-25 demographic. And Instagram -- which has made up for teen losses on Facebook in the past -- is only expected to add 1.6 million users under 25.
The news isn't great for Facebook, but investors shouldn't get too worried.
Image source: Getty Images.
Focusing on friends
Facebook recently announced changes to News Feed designed to increase interaction with friends and focus less on passively consuming viral videos and news stories. CEO Mark Zuckerberg believes these changes will ultimately benefit both Facebook and its users, but it could result in some short-term pain.
But Facebook isn't the only app equipped at bringing friends together. Snapchat is also great at sharing personal posts with friends. And in a time when teens are becoming more privacy conscious, it might present a better sharing option than Facebook.
Meanwhile, Instagram has made tremendous progress attracting the attention of young users. Its move to copy ephemeral Stories from Snapchat has increased engagement and accelerated user growth. It even seems to have negatively impacted Snapchat's user growth, scoring a big win for Facebook.
Instagram's strong growth among teens ought to continue. eMarketer forecasts 6.7% compound annual growth between 2018 and 2020 for U.S. users 12 to 17 years old on Instagram. That compares to 2.8% for Snapchat. Still, the growth in Instagram won't make up for the absolute loss in users from Facebook.
Snapchat is coming for older users, too
In Snap's fourth-quarter earnings call, CEO Evan Spiegel gave an update about the rollout of Snapchat's redesigned app. Among the early results is improved engagement among users aged 35 and older.
Facebook has had a lot of success with the older demographic on both its flagship app and Instagram. The higher spending power of those users compared to teenagers makes the direct-response advertisements on Facebook extremely valuable.
As Snap continues to improve its user experience, making it easier to share and consume content on its app, it could start winning more of those older users.
Why investors shouldn't be too worried
Facebook is still a top choice for advertisers looking to reach the widest audience in any demographic. Advertisers looking for the most efficient use of their time and budgets are still more likely to choose Facebook over Snapchat or other smaller competitors.
Additionally, Instagram's overall growth is still faster than Snapchat's despite its larger size. Instagram's total U.S. user count will increase 13% this year versus 9% for Snapchat, according to eMarketer. With plenty of room to attract new advertisers and increase the number of ads users see on the app, it presents a solid runway for further growth at Facebook.
While Facebook may be losing cachet with teens and Snap's recent results are very good, Facebook's competitive advantage -- a huge network of users with tons of ad targeting data, to boot -- isn't in any danger.
