What Facebook's 2 Billion User Base Milestone Means for Investors
- By Sangara Narayanan
Facebook (FB) announced on June 27 that the company has crossed a major milestone of 2 billion monthly active users. It wasn't a surprising development because the world's largest social media company closed its first quarter, which ended on March 31, with 1.936 billion users worldwide, a growth of 17% compared to the previous year.
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The intrinsic value of FB
The growth is nothing short of stunning, though, because Facebook needed a mere 19 quarters - or a little less than five years - to add 1 billion users to its rolls. Monthly active user base reached 1.007 billion by the end of second-quarter 2012 and, now, at the end of second-quarter 2017, Facebook will finish with a little over 2 billion users.
To put that number in perspective, the current global population is a little more than 7.5 billion. At 2 billion, Facebook's penetration level stands around 26.66% of the global population. It must also be noted that China still remains off limits for Facebook. If we deduct China's 1.388 billion people, then Facebook's penetration shoots up to 30.6%. Just the network effect of such a huge user base alone can keep the penetration level ticking up for many more years.
Though there has been plenty of talk about Facebook's revenue growth slowing down, as long as the user base keeps growing at double-digit rates, the slowdown is going to be slow.
The bulk of Facebook's current growth has been coming from the Asia Pacific and Rest of the World regions. Facebook added 99 million users in the RoW region in the last four quarters, a growth of 18.57%, while adding 150 million users in the APAC region, a growth of 26.5%, during the same period.
The runway for Facebook in both these geographies is huge, which should allow Facebook to capture many more double-digit user growth quarters before things move down to single digits. With Facebook's average revenue per user (ARPU) in Asia Pacific around $2 and Rest of the World at $1.27 during the first quarter, Facebook's revenue will keep expanding at a steady clip due to user base expansion in these regions.
With many of its revenue streams, such as Instagram and WhatsApp, not yet having reached their full earning potential, Facebook continues to trade at lofty valuation multiples. Facebook being a hypergrowth stock, investors need to be watchful about their entry points into it. It is always a better idea to buy small amounts of Facebook over long periods of time, thus making dollar-cost averaging work in your favor.
Disclosure: I have no positions in the stock mentioned above and no intention to initiate a position in the next 72 hours.
This article first appeared on GuruFocus.
Warning! GuruFocus has detected 3 Warning Sign with FB. Click here to check it out.
The intrinsic value of FB
