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Facebook's Teen Users Problem to Aggravate Per eMarketer

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Facebook Inc (FB - Free Report) has been grappling with the problem of teenagers migrating to other social media sites for quite some time now and it isn’t going to get any better. Per the latest eMarketer report, this year, Facebook is expected to witness a 3.4% decline in its monthly average user base for the important 12 to 17 age group, a sharp deceleration from 1.2% decline witnessed last year.

The report also added that the user base comprising the below 12 years age group and the 18 to 24 age group will grow slowly than expected. However, a surge in number of old users will lead to a 2.4% growth in monthly users domestically to 172.9 million.

In contrast, eMarketer is relatively more upbeat about new social media sites like Instagram and Snap Inc’s (SNAP - Free Report) Snapchat. For Snapchat, the research firm has upped its estimates.

In 2017, Snapchat will see its domestic user base grow 25.8% to 79.2 million with users in the 18 to 24 age group increasing 19.2%. In fact, for the first time, eMarketer projects Snapchat to have the highest teen audience (12 to 17 & 18 to 24 cohorts) compared to both Facebook and Instagram.

Instagram is likely to see 23.8% spurt in domestic users to 85.5 million. Instagram is also expected to record a 19% increase in its tweens’ user base and an 8.8% rise in the 12 to 17 age bracket, adds eMarketer.

Thankfully, Instagram belongs to Facebook. Per eMarketer principal analyst, Debra Aho Williamson, “although usage of the main Facebook app is declining among teens, marketers will still be able to reach them on Instagram.”

Notably, Facebook was subjected to severe ridicule when it acquired the snazzy photo sharing app in 2012 for $1 billion. However, after opening its ad platform to worldwide advertisers last year, Instagram has emerged as an important cash cow for Facebook. The photo-sharing app has over 700 million MAUs and over 400 million DAUs.

To bring in more advertisers, Facebook has added new tools to promote posts and evaluate business performance directly within Instagram. In Mar 2017, Facebook started inserting ads in Stories, a feature on Instagram that has 250 million daily actives. Stories is a blatant rip off of Snapchat’s hallmark feature.

Notably, Facebook has a habit of acquiring apps that help it to diversify its business. For example, it acquired WhatsApp and made a big splash in the mobile messaging space. In sync with the strategy, Facebook had tried to acquire Snapchat in 2013 but founder and CEO Evan Spiegel turned down the offer.

Since then, Snapchat has been offering some serious competition in terms of attracting teenagers/young adults to its platform. Consequently, Facebook has started to mimic Snapchat features on all of its platforms so as to boost user growth and engagement levels. 

Notably, Facebook not only introduced Snapchat-inspired features but has made it more popular than Snapchat. Consequently, eMarketer remains wary about Snapchat’s long term growth prospects.

 Zacks Rank and Share Price Movement

At present, Facebook has a Zacks Rank #3 (Hold). The company has outperformed the industry in the last year. The company’s shares have increased 35.1% compared with the industry’s gain of 13%.

Stocks to Consider

Better-ranked stocks in the broader technology sector are The Trade Desk Inc (TTD - Free Report) and Alibaba Group Holding Limited (BABA - Free Report) , both sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

In the trailing four quarters, Trade Desk and Alibaba have delivered an average positive earnings surprise of 187.8% and 18.5%, respectively.

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