In Facebook's (NASDAQ:FB) third-quarter conference call, CFO David Ebersman pointed out that the company "did see a decrease in daily users specifically among younger teens." That sentence immediately sent the stock down, despite good earnings results. Now, a study published earlier this month called the "Global Social Media Impact Study" found that Facebook is "dead and buried" among teenagers in Europe.
With Twitter (NYSE:TWTR), Instagram, Snapchat, and WhatsApp providing popular alternatives for teens, Facebook is seeing its engagement with teenagers diminish. Perhaps that's why Google (NASDAQ:GOOGL) reportedly made bids on three of those four, and the same reason why all three rejected its bids. At the same time, the trend begs the odd question, "Did Facebook become too popular?"
The biggest reason teens are ditching Facebook
Teenagers are fickle beasts. The study found "the most seminal moment in a young person's decision to leave Facebook was surely that dreaded day your mum sends you a friend request." If your parents do something, it's almost automatically "uncool."
Note that the exodus is not because of any technical abilities that Facebook lacks. In fact, the school children surveyed for the study admitted that Facebook, in many ways, is better than Twitter or Instagram. It also says that it's not because of privacy policies at Facebook, which is what Snapchat touts over the competition. The biggest reasons teens leave Facebook is because their parents can check up on them.
So, Facebook finds itself with an aging user base. Is that really such a bad thing? In the near term, absolutely not. In the longer term, maybe.
In the near term, Facebook stands to gain from its older user base for one key reason: Older people generally have more money. The most valuable demographic is users in their 20s and early 30s, although users between the ages of 35-54 slightly trail young teens. Still, the gap is small, and the increasing familiarity of the demographic with e-commerce improves the chances of the older generation quickly increasing in value. In fact, older women are already more valuable to advertisers than their teenage daughters.
In the near term, Facebook's average cost per thousand impressions, referred to as cost per mille, or CPM, should continue to improve as its user base ages.
Where are teens going?
As teens reportedly flee to parent-free networks, Twitter is among the companies seeing the benefit. The company's stock has been on a roll since its IPO, reaching as high as $74 before falling to $63 at the end of last week. It went on a tear after the GSMI study was released. Still, Twitter has far from saturated its market with just 232 million active users.
More importantly, teens are utilizing another group of apps that have proven to be more effective than the all-in-one solution provided by Facebook. WhatsApp is better for messaging friends, and instead of advertising to its users, the company charges a nominal subscription fee. The business model capitalizes on the relative expense of text messages.
Both Facebook and Google have apps that mimic the functionality of WhatsApp, but they haven't proven nearly as popular. Google reportedly offered $1 billion for the company back in April after admitting last year that messaging is a gaping hole in its mobile strategy.
Snapchat is popular for contacting close friends, according to the study, but if a photo is worth sharing for more than 10 seconds, younger users typically upload it to Instagram, which is owned by Facebook. Facebook and Google each, reportedly, made offers to Snapchat.
In effect, Facebook's social graph has been compromised by the phonebook in teenagers' smartphones. What was once its biggest advantage in connecting people has been marginalized for the younger mobile-first audience.
Is Facebook in trouble?
Not really. The long-term effect of teens using Facebook less is unclear, but I believe that its usefulness will outweigh its diminishing "coolness." It's likely teens will flock back to Facebook after they go away to college or get jobs and begin to miss the friends they used to see in person every day.
Losing teen engagement doesn't seem as catastrophic as analysts have made it out to be -- at least for now. Until people in their 20s and 30s start abandoning Facebook -- i.e., these teens don't return -- Facebook should continue to thrive.
Adam Levy 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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