Tickers in this Article: FB, TWTR
Why Facebook Investors Should Fret That Young Teen Users are Leaving the Nest
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.

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