Facebook: Teenage wasteland?

Facebook is becoming less relevant to teens. Should investors panic?

a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

When Facebook (NASDAQ: FB) first went public, investors were worried if it could effectively monetize mobile, which was experiencing rapid user growth, generating no revenue, and threatening to cannibalize Facebook's desktop-based business model.

Now that 49% of Facebook's advertising revenue originates from mobile, those worries have been put to rest, and investors have moved onto newer concerns. This time, investors are obsessing over teenage engagement and the role Facebook plays in their lives. Ultimately, I'm confident Facebook will find a way to, once again, ease these concerns.

The $18 billion temper tantrum
By now, I'm sure you've heard that, during Facebook's third-quarter conference call, CFO David Ebersman told investors that, although usage among total U.S. teenagers remained stable on a sequential basis, the company experienced a decline in daily usage within its younger teenage demographic. His comments immediately erased shares' 15% post-earnings gain, translating to an $18 billion loss in market value.

If I had to guess, chances are pretty high that Piper Jaffray's recent survey, which showed that Facebook is decreasing in importance among teenagers, added some fuel to the fire.

Source: Piper Jaffray via Statista.

A little perspective, please!
First of all, we neither know exactly how big this subset of "young teens" is, nor do we have concrete drop-off figures to mull over. Realistically, I don't think it's statistically significant enough to matter at this time, because Facebook's total user engagement level continues to rise.

Sources: Facebook and author's calculations.

By tracking the ratio of daily active users, or DAUs, to monthly active users, or MAUs, an investor can get a good sense if Facebook's platform is converting occasional users into daily users, and whether overall user engagement is on the rise. As long as the ratio of DAUs continues increasing relative to MAUs, there's little for investors to worry about here, because a more-engaged user base provides Facebook with more revenue-generating opportunities.

Getting back to the Piper Jaffray survey, it isn't nearly as bad as the headline reads, considering that Facebook owns Instagram! Combine the two entities, and Facebook's total relevancy among teens only declined by 8% in total, putting it well ahead of the competition. Although this is something to keep an eye on going forward, it reinforces the notion that Facebook likely made the right choice to fork over $1 billion to buy Instagram.

It comes with the territory
No company can fully escape investors' worries, whether they are about earnings, the economy, or teenage engagement. At the end of the day, the greatest businesses are the ones that can adapt to threats, and turn them into new opportunities. Judging by Facebook's ability to take the challenge of mobile and turn it into a massive opportunity, I'm confident that Facebook is one of the greats, and management will find a way to deal with the potential issue of teenage engagement.

A version of this article, written by Steve Heller, originally appeared on fool.com.

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »