U.S. Markets open in 4 hrs 52 mins

Facebook Leaves Too Much Money on the Global Table

Tim Culpan
1 / 3

Facebook Leaves Too Much Money on the Global Table

(Bloomberg Opinion) -- The initial reaction on Wednesday to Facebook Inc.’s fourth-quarter earnings revealed investors’ disappointment. Revenue climbed just 25%, the slowest ever, though it topped analysts’ estimates, Bloomberg reported.

Shares fell in after-market trading on concern that perhaps the company has peaked.

In truth, there’s no reason Facebook’s revenue should slow. The problem is that it’s leaving far too much money on the table.

The world’s largest social media company likes to boast about its international reach, with 2.5 billion monthly active users. Perhaps Coca-Cola is the only company with wider global recognition.

Yet Chief Executive Officer Mark Zuckerberg has failed to fully capitalize on the 2.2 billion Facebook users who are not in North America. The numbers tell the story. The U.S. and Canada account for 10% of Facebook’s MAUs but 49% of revenue. The Asia-Pacific region, on the other hand, accounts for 41% of users  — more than 1 billion people — but generates just 17.4% of the company’s revenue.

Purchasing power is one reason, but that’s an insufficient explanation. In Europe, for example, the average user generated $13.21 last quarter. That’s just one-third of the $41.41 garnered in the U.S. and Canada. World Bank data shows that North Americans are on average wealthier than Europeans, but they’re 67% richer, not three times richer. In Asia-Pacific, the differential is almost 12 times, compared with the five-times gap for per capita GDP, according to World Bank data.

Alphabet Inc.’s Google is in a similar situation, with 46% of its revenue coming from the U.S., a third from Europe and just 16% from Asia-Pacific.

Given that Google has a commanding share of the global smartphone market with its Android operating system, its results from Asia could also be regarded as underperformance. Its European contribution is more in line with expectations for an international business. The key difference is that Google, which is built around search, faces a solid local competitor in many markets it operates.

Outside of China, where few of its 1.4 billion citizens are users, Facebook is a dominant force almost everywhere thanks to its suite of apps including Facebook, Instagram, Facebook Messenger and WhatsApp. 

There are myriad explanations for why America drives Facebook revenue: It’s a large sophisticated market; advertisers are social savvy; internet penetration is high. But each of those reasons has a rebuttal.

In Indonesia, a nation with more than 150 million internet and social media users, Facebook properties occupy the top three spots by both downloads and use, according to the latest annual digital report by Hootsuite and WeAreSocial. And the Southeast Asian nation leads by most measures that might indicate the prospective value of a consumer to advertising clients. It leads the U.S. in use rates of mobile messaging, videos, games and even banking, while a higher proportion of people have searched for or purchased a product online.

In Vietnam, where Facebook has 61 million monthly users, engagement rates are similar or higher than those for the U.S., according to Hootsuite and WeAreSocial. For Brazil, where the company has more than 130 million users, Facebook accounts for three of the top four social media platforms; engagements also look strong. 

And then there’s India. The nation has 1.19 billion mobile phone connections and 300 million Facebook users, surpassing the U.S. Sure, Indian consumers aren’t as affluent, but data indicates that paid reach — a measure of how many people saw a paid post from an advertiser’s page — is on par with the U.S. while other engagement figures look similarly lucrative. 

Executives noted last year that revenue will most likely take a hit as it deals with increased scrutiny and regulation in the U.S. and elsewhere. At the same time, data suggests that election years aren’t the boon for revenue that one might imagine. Yet the company still seems overly focused on its home market.

However you look at it, Facebook’s global reach has great potential. It’s an opportunity the company needs to work harder to exploit.

To contact the author of this story: Tim Culpan at tculpan1@bloomberg.net

To contact the editor responsible for this story: Daniel Niemi at dniemi1@bloomberg.net

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

Tim Culpan is a Bloomberg Opinion columnist covering technology. He previously covered technology for Bloomberg News.

For more articles like this, please visit us at bloomberg.com/opinion

Subscribe now to stay ahead with the most trusted business news source.

©2020 Bloomberg L.P.