Facebook (FB) has always had one huge question looming over its business model: can it stay relevant and still monetize its massive user base? In other words, can Facebook go from club to legitimate business with both revenues and earnings.
The revenue part has proven much easier than most expected. As Facebook’s user base transitions to mobile, the company is finding ever more effective ways to turn smartphones into ad space. From next to nothing a year ago, fully 48% of its advertising revenues came from mobile devices in Q3. Last quarter when Facebook announced that 41% of its revenues were coming from mobile, the stock launched past its IPO price and paved the way for Twitter’s (TWTR) upcoming IPO.
As my co-host Matt Nesto and I discuss in the attached clip, Facebook has a nice tailwind in the form of the advertising industry’s endless obsession with staying hip. According to a Nielsen report last week, Internet advertising grew more than 26% in Q2. Television still commands $0.57 of every ad dollar spent, but not for long. TV spending is growing at a relatively meager 4.2%.
The problem is the users advertisers covet aren’t proving to be quite as loyal as once thought. Facebook crushed estimates in terms of revenues and earnings, but the number of monthly active users was disappointing.
Facebook’s Daily Average Users (DAU) base came in at 728 million, up 25% year over year. Monthly Average Users (MAU) grew 18% over the same period. That growth rate is slowing overall. The worst news is that use among teenagers is actually staying flat or even decreasing.
To quote CFO David Ebersman from the conference call: “Usage among U.S. teens overall was stable from Q2 to Q3. So we did see a decrease in daily users specifically among younger teens.”
That’s a problem. Mom and dad have the cash, but the kids determine what’s hot and what’s not on the Internet. Facebook didn’t invent social media, it just discovered a way to make money off it. It remains to be seen whether users will be willing to stick around and get monetized for long.
Myspace used to be a cool social internet site. It’s all but dead. AOL’s AIM Instant Messaging was once the industry standard for communicating with friends. AOL AIM doesn’t exist at all. AIM could best be described as the anti-social version of Twitter.
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