Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche


Is Facebook losing the Audience it needs most?

It is hard to believe but Facebook (NASDAQ: FB) is actually losing significant numbers of users in an important category.

The Social Network’s flagship site lost 2.8 million American users under 25 in 2017, Recode reported. What’s more disturbing is that Facebook lost almost 10% of its 12 to 17-year-old users in the United States, eMarketer estimated.

Around 1.4 million Americans in that age group left Facebook in 2017. That was around 9.9% of all the users in that age group. If these statistics are accurate Facebook has lost the under 25 demographic in the United States.

Facebook might lose 2.1 Million American users this Year

What’s truly frightening is that Facebook’s audience decline is accelerating. eMarketer predicted that the Social Network will lose 2.1 million members of Generation Z (Americans under 25) in 2018.

The potential losses include 9.3% of users under 11; 5.6% of the users between 12 and 17, and 5.8% of those between 18 and 24, Recode noted. This means that the younger the person is, the less likely he or she is to go near Facebook.

Facebook CEO Mark Zuckerberg talks about the company’s 10-year roadmap during his keynote address Tuesday at the F8 Facebook Developer Conference in San Francisco.

Such declines involve far more than a loss of “coolness” they imply a widespread dumping of Facebook by a significant portion of the population. They also point to changes in media usage that will affect all generations.

The reasons for these losses are complex, they include a plethora of often better alternative social media, growing widespread distrust of large-centralized mediums like Facebook among a growing segment of society, and social media fatigue.

A potential cause of decline that has to be considered is a rising technophobia among wide segments of the population. Privacy concerns and news stories about Russian infiltration of Facebook are undoubtedly having an impact.

My personal belief is that people under a certain age; and a great many tech-savvy older people such as myself, simply find Facebook crude and mind-numbing. Most of Facebook’s appeal is driven by its “internet for dummies” approach of simplified use. Baby Boomers and a lot of Generation Xers find that attractive, while Generation Z members and Millennials that value complexity hate it.

No, you Should Not Dump Facebook stock because Generation Z is Dumping the Social Network

The decline in Facebook usage among Generation Z is no reason to sell Facebook stock. The company is well positioned for growth even as its core asset shrinks.

Facebook owns one of the main mediums that the under 25 set is dumping its Social Network in favor of: Instagram. Instagram gained 100 million users between April 2017 and September 2017, rising from 700 million to 800 million users, Statista data indicates. More importantly, Instagram usage doubled between September 2015 and September 2017 rising from 400 million to 800 million in just two years.

That figure alone proves that Mark Zuckerberg understands social media and knows where it is going. He foresaw Facebook’s decline coming and purchased Instagram to counter it.

More importantly, Zuckerberg understands that the future of social media is the developing world. That is why he purchased WhatsApp, a messaging solution unknown to most Americans but widely used in developing nations. WhatsApp is a very simple app that can operate on basic phones and in areas with terrible service.

WhatsApp’s usage rose to 1.5 billion in December 2017, Statista calculated. That means it added 500 million users in less than two years; WhatsApp first reached one billion users in February 2016.

Mark Zuckerberg Understands Social Media that’s Why Facebook is a great investment

Even if Facebook itself crashes and burns; Zuckerberg has positioned the company to grow and make money without it. Something to remember about the lack of coolness is that most of the younger people dumping Facebook have little money. Their parents who have the money are still using the app.

The danger is the loss of future business when Generation Z gets older; and has money in the bank, not the loss of users right now. Zuckerberg gets that reality and has prepared for it by buying into the media that generation Z is using.

More importantly, Facebook is making a lot of money right now. Its quarterly year-to-year revenues grew by 47.26% between 4th Quarter 2016, and 4th Quarter 2017. The quarterly year-to-year net income grew by 19.61% during the same period. Best of all the year-to-year quarterly operating income grew by 60.98% between 4th Quarter 2016 and the same period in 2017.

Facebook is Generating a lot of Cash

Facebook generated a lot of cash during 4th Quarter 2017. It earned a revenue of $12.97 billion, a net income of $4.27 billion, and an operating income of $7.35 billion during that period.

Best of all Facebook had $8.08 billion in cash on hand on December 31, 2018. For all its faults Facebook is still generating a lot of float.

The only thing I do not like at Facebook is the share price which $175.32 on 20 February 2018. That is way too high, but Facebook is still a great stock which has the potential to be worth that much money.

The bottom line is that Facebook is still the only social media stock worth owning because it makes money. The fact that Facebook is making more money as young people dump its’ flagship solution, proves how good this stock is.