Facebook No Longer Home to Teens

Mark is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

A few weeks back, Facebook (NASDAQ: FB) announced the Home function that again grabbed the media attention similar to Graph search back in January and several other initiatives recently. While the market continues to debate the importance of these new functions, it continues to ignore that teens are leaving the social network in the millions. This is good news for stocks such as Google (NASDAQ: GOOG) and Yelp (NYSE: YELP) that could be impacted if Facebook was ever successful with these new initiatives.

The leading internet social media firm had surged to a market cap approaching $70 billion back in January based on the expectations that these big initiatives will lead to surging revenue growth. What investors generally missed is that these new initiatives came with additional costs that will limit earnings growth this year.

While the market focuses on the monetization initiatives such as Home, the existing users on the platform don’t appear as eager to stick around for these new services. Facebook is not ensured to be the social media outlet of choice in the future. Back in January, the evidence suggested that domestic users had peaked. Now, it appears that the younger crowd is leaving the service in droves.

Is Home even important?

As with the Graph search function in January, the Home function is an attempt to place the genie back in the bottle. Initiatives such as home are possibly leading to the user base fleeing as Facebook quickly goes from a free service absent ads to one where the company attempts to hock every move made by a user.

Facebook claims that the Home function turns an Android phone into a living, social phone. It turns the focus of the phone to people and away from apps. The question is whether users actually want this service. Most people constantly use business, games, sports, and weather apps outside of Facebook questioning any desire for this new service.

The service appears to be another attack on Google similar to that of Graph search. While the company claims that the service isn’t an operating system, it clearly takes several steps towards overwriting Android. It could just be the first step to creating a full-blown OS.

Teen users plunging

The bigger issue not generally addressed is that all the new revenue monetization issues won’t matter if Facebook follows the path of all other social networks. Eventually users tire of the service and move onto the next hot social network. The new set of teens aren’t as interested in following the footsteps of the teens from 5 years ago akin to a nightclub typically having a limited length of popularity.

As the previous article pointed out, SocialBakers was already showing that users in the U.S. were peaking. Part of the problem is a matter of size as nearly 69% of internet users were on the site. In reality, the data now confirms that not only did the user base peak back at around 170 million, but also it is now dropping with the younger crowd leading the downturn. See chart below:

<img alt="" src="http://g.fool.com/editorial/images/34341/screen-shot-2013-04-19-at-31502-pm_large.png" />

The chart shows that the 18-24 year old group lost the largest amount of users in the last 3 months at over 2 million. The second largest group was the 25-34 year olds at nearly 2 million users. Ironically the only group to gain was the 65+ year old group that likely diminishes the younger groups desire to stay on the site. Its one think to deal with a nosy parent, but showing your wild party pics to your grandparents is a whole different issue.

As with all of the monetization plans of Facebook, the investment community always overlooks the number one fact. All social networks eventually die whether a virtual network such as MySpace or a real world network of high school or college friends.

Reduced competitive impact

The long-term impact to Google and Yelp appears to decline on a daily basis. Clearly Facebook will make some inroads into search and grab a minimum user base for search functions. No signs exist that users want Facebook to provide any services such as search and user recommendations.

Analysts still expect Yelp to grow revenue by 54% this year and nearly 40% next year. Both indications that Facebook is having no impact on the services it hopes to replace.

Conclusion

Remarkably, the analyst community and media outlets continue to fight over whether Facebook deserves the vast $61 billion valuation while ignoring the potential for the social network to face the typical demise.

The SocialBakers data is worth following as it suggests the network peaked in October. The desire for the company to increasingly monetize the massive network of users is only likely to push the average user away from the service.

It doesn’t appear that Google or Yelp have anything to fear. Google will remain the place to search for actual business-related functions. Likewise, Yelp collects data from users that voluntarily share in hopes of helping the community as a whole.

In the end, Facebook will never be able to monetize users that don’t exist in the future. If teens are fleeing the social network, the future doesn’t appear bright enough to justify a valuation of over 9 times the current revenue base.


Mark Holder and Stone Fox Capital Advisors, LLC  are short Facebook. The Motley Fool recommends Facebook and Google. The Motley Fool owns shares of Facebook and Google. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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