If Facebook (Nasdaq:FB) can’t keep teenagers on its social networking site, perhaps it can just buy their attention.

The Menlo Park, Calif. company’s shares dropped last month after Chief Financial Officer David Ebersman told analysts on the third quarter earnings call that the service “did see a decrease in daily users, specifically among younger teens.” This group remains key to Facebook’s prospects because marketers believe teenage use often presages wider popularity, particularly in technology and Internet industries. Without strong teenage use, Facebook risks losing growth to other platforms such as Twitter (NYSE:TWTR), Tumblr or those still percolating in the mind of a teenage coder.

Facebook has already bought one big teen platform, Instagram, paying $1 billion in cash and stock last year for its 100 million users. On Wednesday, The Wall Street Journal reported that Facebook bid $3 billion for Snapchat, a two-year-old company with no revenue or earnings that has a smartphone app which delivers messages that disappear in 10 seconds or less. The Stanford University dropout who started Snapchat, Evan Spiegel, turned down the offer, holding out for $4 billion, the Journal reported.

That Facebook now is facing a decline in use by teenagers is ironic. CEO Mark Zuckerberg launched the social media site when he himself was a teen and an undergraduate at Harvard University. While his company now boasts 1.2 billion users, losing teens could suggest that the service may be losing relevance and that could hurt its ability to keep attracting advertisers, which provide the bulk of Facebook’s $2 billion in quarterly revenue. MediaBistro reported in October that 61% of teens name Tumblr as their favorite social-media site, compared with 55% for Facebook. Facebook didn’t comment on its use by teens.

Many of Facebook’s users now are the parents of teenagers. “Teens have more and more environments in which it spend time through web-connected devices,” said Brian Wieser, an analyst with the Pivotal Research Group.  David Kirkpatrick, the author of “The Facebook Effect,” said teens are using “a range of things. My 21-year-old daughter, for instance, uses Twitter, Instagram and Pinterest for different reasons at different times. The Internet is seen as a palate of options.” Pinterest is a content-sharing service that permits its members to “pin” images, videos and related features to their pinboards

“The case for Facebook changes as you get older,” said Janney Capital Markets analyst Tony Wible. “Facebook is an important communications tool for older people but a 13-year-old doesn’t have the same need for it. Younger people are spending their time with a lot of other things in media, like Instagram, Snapchat and the latest app on their cell phones.Video games, like Grand Theft Auto are also popular with them, and movies had a good third quarter in terms of incremental growth of media consumption.”

Charles Haddad, a journalism professor at Stony Brook University in Long Island, said that he is hardly surprised that young teens are migrating from Facebook. “It’s ever easier for them to switch,” said Haddad. “The more interconnected we become, the easier it is to be restless and try out a new service. And young people are born restless. They want to be first to discover the latest and greatest.”

Now, Facebook has the challenging task of creating for young teens the illusion of a cyber-community, where they will want to gather and exchange information and gossip. “Communities are valuable to companies because of the number of potential connections inherent,” said Mel Bergstein, the retired CEO of Diamond Technology Partners, a consulting group that assists companies in excelling on social media. For a company, he said, “the bottom line is, the more people in a community, the more valuable it is.”

The Bottom Line

If Facebook hopes to recapture the young-teen market, Zuckerberg will have to change the way it views these users – and itself. And that may mean more billion-dollar bids for hot new apps without business plans developed by twentysomethings barely out of college.

As Kirkpatrick mused, “Zuck likes to refer to Facebook as a ‘utility.’ But what teenager is going to get excited about a utility?”  

Disclosure - At the time of writing, the author did not own shares of any company mentioned in this article.

Related Articles
  1. Fundamental Analysis

    10 Major Companies Tied to the Apple Supply Chain

    Apple has one of the best supply-chain models. Here are some of the top businesses involved, and the benefits and challenges for all.
  2. Professionals

    Tips on Building a Resume for a Private Equity Job

    Trying to land a job in the coveted private equity sector? Ensure your resume meets the stringent PE job requirements with these important tips.
  3. Stock Analysis

    Net Neutrality: Pros and Cons

    The fight over net neutrality has become an amazing spectacle. But at its core, it's yet another skirmish in cable television's war to remain relevant.
  4. Charts & Patterns

    Understand How Square Works before the IPO

    Square is reported to have filed for an IPO. For interested investors wondering how the company makes money, Investopedia takes a look at its business.
  5. Personal Finance

    A Day in the Life of an Equity Research Analyst

    What does an equity research analyst do on an everyday basis?
  6. Investing

    Three Companies That Will Benefit From Online Gaming

    Certain companies stand to benefit from the increasing popularity of the online gambling industry in the U.S., as well as its expanding legalization.
  7. Mutual Funds & ETFs

    ETF Analysis: PowerShares S&P 500 Downside Hedged

    Find out about the PowerShares S&P 500 Downside Hedged ETF, and learn detailed information about characteristics, suitability and recommendations of it.
  8. Mutual Funds & ETFs

    ETF Analysis: ProShares Large Cap Core Plus

    Learn information about the ProShares Large Cap Core Plus ETF, and explore detailed analysis of its characteristics, suitability and recommendations.
  9. Mutual Funds & ETFs

    ETF Analysis: iShares Core Growth Allocation

    Find out about the iShares Core Growth Allocation Fund, and learn detailed information about its characteristics, suitability and recommendations.
  10. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI USA Minimum Volatility

    Learn about the iShares MSCI USA Minimum Volatility exchange-traded fund, which invests in low-volatility equities traded on the U.S. stock market.
  1. Equity

    The value of an asset less the value of all liabilities on that ...
  2. Google Blogger

    Google Blogger is a free publishing platform run by Google (GOOGL). ...
  3. Wordpress (CMS)

    Wordpress is widely considered easy to use and is the CMS of ...
  4. Digital Marketing

    Digital marketing is a subcategory of marketing which uses digital ...
  5. Monthly Active User (MAU)

    Monthly Active User (MAU) is a key performance indicator (KPI) ...
  6. Social Networking Service (SNS)

    SNS stands for “social networking sites.” SNS users create a ...
  1. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  4. How has Google's operations strayed from its original mission statement?

    Google's (GOOG) mission statement has been the same since its inception in 1998: "Organize the world's information and make ... Read Full Answer >>
  5. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  6. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>

You May Also Like

Trading Center

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!