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Facebook Inc. Has the Magic Touch in Getting Followers, Making Money

By Tim Brugger - Feb 17, 2016 at 5:24AM

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The social media king’s rapid user growth continued last quarter, and is expected to reach yet another milestone in 2016.

One of the most impressive aspects of Facebook's (META -1.01%) recent earnings report was the growth of its monthly active users (MAUS), despite its already global reach. From an investor's perspective, all those users (1.59 billion MAUs as of Dec. 31) are nice, but it's Facebook's ability to translate usage into revenue that has pushed its stock to near-record highs. And shareholders can expect more of the same as Facebook inches its way toward digital ad king Alphabet (GOOG -0.54%) (GOOGL -0.57%).

Gaining digital ad share begins with Facebook growing MAUs even further -- with revenue to follow. The number of Facebook "friends" is already mind-boggling considering more than half the world's population isn't connected to the Internet yet. According to a recent study, not only is Facebook expected to increase MAUs even further in the all-important U.S. market, this could prove to be a record year.

Image source: eMarketer

Just the facts
Facebook once again added 40 million MAUs last quarter, just as it did in Q3, and now boasts 1.59 billion worldwide. Considering there are expected to be an estimated 3.2 billion global Internet users in 2016, Facebook's reach is remarkable. Just as impressive is that, contrary to some trend-watchers' concerns, Facebook's online population is more engaged than it's ever been.

At the end of 2015, there were over a billion users logging into Facebook each day, 934 million of whom accessed it via a mobile device. Another first for Facebook, as per recent data from eMarketer, is that over half the U.S. population -- a number just shy of 163 million people -- either are, or will become, part of its massive MAU pie in 2016.

By 2020, eMarketer estimates that U.S. usage will grow to over 53% of the population. As Twitter (TWTR -0.26%) knows firsthand, having seen its MAUs drop in Q4  from 307 million to 304 million, gaining new "friends" isn't necessarily easy. Though Facebook certainly makes it seem that way.

What's the big deal?
The headline gain in MAU numbers is great, but what makes them better still is that the U.S. is easily the largest digital advertising market in the world. Including everything from email marketing to lead generation, digital ad spend in the U.S. will total an estimated $67 billion this year. Of that, display ad spend -- led by video -- will outpace search ad spend, which will be another first.

In terms of social spots, Facebook will capture over 73% of the entire market this year, according to eMarketer, equal to nearly $10 billion. Twitter is expected to be next on the list with $1.86 billion. The largest digital ad market in the world is growing, just as Facebook usage in the U.S. is: a nice combination for Facebook shareholders.

Gaining digital ad share
Similar to Alphabet, well over 90% of Facebook's $17.93 billion in revenue last year was driven by ads. That's impressive growth -- slightly more than 50% year-over-year -- but still well short of Alphabet's approximately $70 billion. That means Facebook has a big mountain to climb, but its continued integration into the lives of U.S. citizens will help.

A few more arrows in Facebook's quiver include its Instagram, WhatsApp, and Messenger properties. Now that Instagram is fully monetized, 2016 should see a big revenue impact. WhatsApp and its 900 million MAUs, along with Messenger's more than 800 million, will also help gain market share, once they are fully monetized. To a lesser extent, Facebook's Oculus Rift virtual reality headset should move the needle a bit in 2016, but for now at least, VR remains a market in its infancy.

Facebook has proven it's able to convert MAUs to revenue, and it's clear the formula for capturing and engaging users across its sites is working like a charm, in the U.S. and beyond.


Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Tim Brugger has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Facebook, and Twitter. 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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