Facebook Faces Potential Fall in Youth Users, Stock Decreases as Investors Show Concern

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After releasing strong second quarter reports and boasting 2 billion users globally, it didn’t look like there was much to worry about when it came to Facebook (NASDAQ:$FB). However, that may no longer be the case. According to data from eMarketer (traded privately) released on Wednesday, August 23rd, Facebook’s number of tween and/or teen users in the U.S. and U.K. are expected to fall next year. Meanwhile, Facebook’s main competitor, Snap Inc.’s (NYSE:$SNAP) Snapchat, is expecting a growth in tween and/or teen users.

The news shouldn’t come as a surprise to any investors who have been keeping track of Facebook and the company’s performance. Ever since Facebook’s launch, many investors and analysts had been concerned over how the social media platform will keep its younger users engaged. This concern – probably also shared by Facebook – is what prompted the company to acquire Instagram back in 2012.

It’s highly probable that Facebook’s management has been fully aware of its declining youth users a long time before eMarketer released their estimates. This is because the company most likely has powerful data analyzers given how its platform operates.

While it’s strange to see Facebook’s stock fall for the day – on Wednesday, the company closed after a 0.55% decrease – it’s perhaps even stranger to see Snap’s stock increase. By Wednesday’s closing, Snap’s stock has gone up by 3.85%. The social media company had been struggling ever since its CEO Evan Spiegel made it public. Investors and analysts had shown concern over Snap’s slow user growth and ad revenue.

It’s rather interesting to consider both Facebook and Snap and how their weaknesses and strengths are almost the opposites of each other’s. For example, Facebook has been doing well in attracting users of all ages except for youths while Snap have been great at attracting youth users but has sacrificed a more diverse audience growth.

The worst case scenario for Facebook’s declining youth demographic is if the company ends up in the same situation as the cable TV industry, where future growth and success are extremely uncertain.

Investors should watch out for any new features being released or changes made by Facebook in the near future. This will help to gauge how serious the company’s management is taking in the people’s concerns. If the youth demographic growth is being taken into consideration, features that may attract more youth could become more prominent. If not, then investors may have to tread much more carefully when it comes to Facebook’s future.

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About the author: Grace is currently studying at UBC to achieve her BA in Computer Science. She is due to graduate in 2020. As a content creator, Grace has written financial analysis, stock market news, and informational investing articles. She also worked as an editor with her university publication 'UBC Undergraduate Journal of Art History'.