Some interesting data-points in this arena over the last couple of days.
A million users's isn't cool. Do you know what's cool?
Facebook announced yesterday that as of 14th September it had hit a billion monthly active users. Extrapolating that forward it implies 1,009m MAU's at quarter end, up from 955m in Q2.
What was more interesting however was the underlying in the appendix.
Look closely and there a snake in the garden. Well actually, three of them:
Firstly, although user numbers continue to grow, growth rates continue to slow:
That's not that surprising. It's the inexorable law of large numbers, but its also a reason why large companies tend to attract lower valuations than smaller ones.
The second thing is that they mentioned in the appendix that mobile users hit 600m. This means mobile users are now a stonking 59% of the mix (they didn't disclose the more interesting mobile-only users in this release; for context this was 11% of MAUs at Q2).
Remember mobile users are lower revenue than Facebook, and judging from my experience, Facebook haven't figured out how to drive this up. My wife continues to be spammed daily by adds for Salesforce.com, and I remain unconvinced that a soil mechanics PhD student really needs a mid-market on-demand CRM system.
Thirdly, and most interestingly though Facebook disclosed the median age of its user base as of Q307, Q308, Q310 and now (the points where it hit the 50m, 100m, 500m and 1bn user milestones). I may be wrong, but I think this is new disclosure. What's fascinating though is that if you have the age of the given user base at any point in time, you can figure out the average age of new users:
|Median age for Q309 and Q311 not provided, so this is interpolated, weighted by (reported) MAU user growth.|
This is curious. I would have thought as Facebook became more mature and extended beyond its campus-origins, the average age of new users would have gone up. Instead it's actually fallen consistently from 26 in the early years to 20.4 in the last twelve months.
Remember Facebook's big challenge is to increase ARPU - but if you're new users are getting younger this is a headwind because younger people tend to have lower disposable income. Yikes.
But there's more.
I suspect the real reason for younger and younger users is that at Facebook reaches maturity in (richer, older) developed markets, new users are coming from (poorer, younger) emerging markets. The table below shows the mix of quarterly net adds by region (and yeah the funny bit on the right is because US & Canada MAUs were negative in Q212):
But there's more.
Are you've no doubt realised, emerging markets are poorer markets. So lets use regional GDP/capita to figure out the average GDP/head for new Facebook MAUs:
So in summary, Facebook's volume growth is slowing, is shifting towards lower ARPU mobile customers and its new customers have less money to spend.
Are you sure this is the kind of stuff you want to issue a press release about???
A zinger from Zynga
The other fun fact yesterday was Zynga's Q3 profits warning. Basically they reported a Q3 revenue and EBITDA miss and cut guidance. The chart below says it all (remember this thing was meant to be a hot growth story):
|NB I've estimated Online Game Revenues (the core growth driver) by|
assuming that (previously growth) Ad Revenues were flat in Q3.
Remember Zynga accounted for 10% of Facebook's revenues in Q2 (though now highly likely to fall in Q3!) so the presenting issue is that this is (yet) another revenue growth headwind for FB.
However this is only the presenting issue. The underlying issue is a more fundamental problem of Platform Risk. This is something I touched briefly on in August and I want to write more about next week.
Zynga is dependent on the Facebook desktop platform for a large chunk of its revenues. Users (as we saw above) are shifting away to a mobile platform where ARPU is drastically lower. Zynga do not control the platform users are on, and do not control their destiny.
This is an issue for Facebook on two levels. On one level Facebook are also exposed to mix shift to lower ARPU.
But on a deeper level think about it like this:
Facebook is dependent on the Android, iOS and Windows platform for a large chunk of its revenues. Facebook does not control the platform users are on, and does not control its destiny.