I like to consider myself an early adopter when it comes to technology. Since the start of the mobile telecom and internet age 2o years ago I have quickly gravitated towards hardware, software and apps that make my life and work more convenient. Social media platforms like SnapChat and Facebook offered little appeal at their introduction as they appeared to be designed to waste ones time. Recently I re-opened a Facebook account only to close it back down a few weeks later. I know, I know, social is all about the kids right? But as anyone that’s spent time on Facebook will tell you, and confirmed by ComScore (via Business Insider) from last Summer, Facebook’s kinda for old people. With Facebook’s global user growth nearing 1.5 billion, here’s out the demographics compare to other social networking sites:
Facebook’s average age in the developed world, markets that are likely fairly well saturated are clearly aging. But this old guy still finds Facebook’s core offering clunky and annoying. I use Instagram as a family photo sharing App, but would be done with it if Apple were to every figure out how to make their Pictures on iOS more social. (their photo Moments is too insular and complicated to be “#social”, more on that here from last year)
Facebook’s Instagram property (bought for $1 billion in 2012, and some analysts value between $30 and $40 billion), which is displaying faster growth at the moment, has a better age skew towards younger users, but fewer opportunities to monetize as the service (especially on mobile) has the potential to get cluttered with too large an ad load.
Anecdotally, my 10 and 12 year old daughters, and all of their friends (who only have iOS devices it seems) only use Instagram and SnapChat and apps you have never heard of like Musical.ly, … but NO FACEBOOK. Based on what I see from this small sample, there is a chance my girls never have a Facebook account (heck they don’t even use email.) Why is this important? Well, It’s possible that the population shifts along with the demographics of these social networking sites? Perhaps kids that are currently on SnapChat become Facebook and Pinterest users as they age. And there is some evidence of that. For instance, studies have shown that new moms change their social networking habits after their first child away from things like snapchat and other messaging services and more towards photo-sharing sites like Facebook and Instagram, as well as Pinterest as their social, shopping and decorating habits make an immediate turn.
But they larger point is the uncertainty in the demographics. Those that have killed it to date, may not be the ones that do so in the next decade. Aging demographics, aside from products like Rogaine, Prune Juice and Depends are rarely a good thing. I am not saying Facebook is going the way of MySpace, but the fact that Myspace went the way of the DoDo bird suggests there is a chance. Facebook should know this better than anyone, since their $22 billion purchase of WhatsApp in 2014 (short messaging service that is not social) users have more than doubled from 450 million to nearly 1 billion. These apps can spread like weeds and once the growth stops and users get fed up with the ways the companies monetize them, something else pops up. There is risk.
Yesterday shares of FB were within a percent of their all time highs, now up nearly 10% on the year, up 28% from its January low, up 60% from its August low and sporting a $326 billion market capitalization. Aside from the August flash crash low, the stock has held its long term uptrend like a boss. Calling for a double top from its early February all time high to now might be a tad premature. Q1 earnings due the third week of April (yet to be confirmed) will likely cause a re-tracement to the low $100s or a breakout to new all time, I haven’t made my guess or place my bet just yet on which way:
What’s undeniable is that whether you look at adjusted eps expected to grow 39% in 2016 to $3.17, or sales expected to grow 43% to $25.5 billion, the company is dominating in the monetization game. So on an adjusted basis FB shares trade at 36x their expected 39% eps growth, not bad given the sales growth rate, but on an GAAP basis it trades 52x, and nearly 13x expected 2016 sales. I am not sure in the history of the stock market a $300 plus billion market cap company has every traded at such a healthy price to sales multiple.
Past results have gotten FB stock to where it is today, and they have been nothing short of impressive, but I would add that past results are not indicative of future performance. I would also remind those who are too young to remember that at one point in 2000 Yahoo, Excite and Lycos pumped one too many banner ads in the faces of web-surfers and something changed. A big difference between now and then was the un-profitability of these companies, but the concentration of investors positive sentiment in so few social stocks presents similar risks to a massive correction when the time comes.