Much of investor discussion surrounding Facebook's (NASDAQ:FB) business is often focused on the U.S., Canada, and Europe, and rightly so -- these three markets represent about 75% of the social network's advertising revenue. But the size and growth rate of Facebook's Asia-Pacific segment suggests this market could become far more important in the future.
Facebook's Asia-Pacific segment
"The potential is greater in Asia-Pacific than it is in any other region because we've got two thirds of the world's population, and it's all mobile," said Facebook vice president for Asia Pacific Dan Neary in a recent interview with WSJ.
While Asia-Pacific may not account for the significant portion of revenue its U.S., Canada, or Europe markets do, the company's Asia-Pacific user count highlights the importance of the market. Of Facebook's 1.59 million monthly active users, 540 million are located in Asia-Pacific -- or more than a third of users. It's the company's largest geographic segment when measured by monthly active users.
Asia-Pacific's 309 million daily active users also represent a significant 30% of Facebook's total daily active users, though Facebook's "rest of world" segment, with its 319 daily active users, is slightly larger when measured by this metric.
But despite this market's size when measured by users, Asia-Pacific represents just 15% of the company's advertising revenue -- and this is probably why Asia-Pacific doesn't always seem to be one of the primary concerns among Facebook investors. However, ad revenue growth in the market is definitely notable. Ad revenue for Asia-Pacific during Q4 was up 57%, in line with the social network's overall year-over-year growth in ad revenue across all of its markets.
The Asia-Pacific strategy
One way the company is hoping to help drive more user growth -- and eventually more significant revenue growth -- in Asia-Pacific is by helping bring more people in these markets onto the Internet. This is the focus of Facebook's Internet.org. Facebook CEO Mark Zuckerberg contends that higher Internet usage in a market will help improve the economy and create jobs -- an outcome that could eventually benefit Facebook.
Specifically, Facebook's Free Basics service, which is aimed at offering a snippet of the Internet to users in hopes that they will be convinced to buy a data plan from their telecom provider, is important in Asia-Pacific. With the service, Facebook makes the Internet affordable enough for telecom companies to subsidize the cost and offer it free to users until they (hopefully) want to access the full Internet.
But Free Basics recently ran into a significant roadblock in India when the service was effectively banned by India's telecommunications regulator. However, investors should rest assured: User growth is still likely to remain strong in Asia-Pacific even in spite of detours for Internet.org. User growth in the market has considerable momentum. Between the fourth quarter of 2014 and the fourth quarter of 2015, Facebook users in Asia-Pacific increased from 449 million to 540 million.
While Facebook's Internet.org efforts might help provide a catalyst to growth over the long haul in Asia-Pacific, secular adoption of higher Internet speeds and increasingly more sophisticated mobile devices should spur secular organic growth for the segment for years to come -- no matter what comes of Free Basics.