- Facebook's goal of acquiring 5 billion users by 2030 is now uncertain.
- India is of great importance to the internet-based firm, as it possesses a potentially huge growth market.
- This blow could have wide-reaching implications on Facebook's stock price.
India represents an enormous growth market for every major internet-based company. For instance, Twitter (NYSE:TWTR) has invested significantly huge sums within the region. This is best exemplified by their recent acquisition of mobile marketing and analytics company, ZipDial. Twitter has also forged a partnership with Reliance Mobile, which is one of the leading CDMA (Code Division Multiple Access) and GSM (Global System for Mobiles) service providers within India. In addition to this, the online social networking company has also formed a partnership with e-commerce app LookUp.
India has already become Facebook's (NASDAQ:FB) second-largest market by way of users. In other words, they only trail the United States in terms of number of users. There is compelling evidence for this statement as well. Late last year, Reliance Communications, which is the company’s wireless partner for the Free Basics service within India, confirmed that approximately 1 million users have attempted to utilize Facebook’s mobile application. The service itself provides free access to basic internet services for billions around the globe.
However, Facebook’s objective of reaching a total of 5 billion users by the year 2030 has been handed a considerable blow. The Telecom Regulatory Authority of India stated that Facebook’s Free Basics service has violated a set of principles commonly referred to as net neutrality. In essence, these principles advocate for the equal treatment of all internet traffic. According to the chairman of the Telecom Regulatory Authority, R.S. Sharma, offering free access to some sites and denying free access to others is not in the best interests of consumers, or the growth of the internet.
Furthermore, there is another problem with Facebook’s attempts to gain subscribership within the developing nation. It will most certainly take a monumental effort by the company to garner another 100 million users within the country. For instance, the vast majority of the population has limited, or no access to a reliable internet connection. This is, however, where the company hopes that the Free Basics service will come into play.
All in all, it remains to be seen whether Facebook is in a position to capitalize in future. The company itself is still a very compelling product for users worldwide. More so, as humans continue to crave the ability to connect with friends via social circles, and as the internet becomes more accessible to people in India, Facebook will probably benefit. The company announced good financial results for the fourth quarter and fiscal year of 2015. Facebook founder and company CEO Mark Zuckerberg echoed this, as he stated:
"2015 was a great year for Facebook. Our community continued to grow and our business is thriving… We continue to invest in better serving our community, building our business, and connecting the world."
Revenue for the full year 2015 came to $17.93 billion, which is an increase of 44% year-over-year. In addition to this, Facebook’s mobile advertising revenue represented approximately 80% of its advertising revenue for the fourth quarter of 2015. This is an increase compared to the previous year’s percentage, which was 69%. Elsewhere, the Facebook stock has gained a considerable amount of forward momentum over the past year. This is illustrated in the chart below.
In conclusion, I believe that there may be negative short-term implications of this ban on the social networking company’s growth prospects. Investors should definitely have cause for alarm, as Free Basics was the company’s unique edge over its competition. India is still a poor nation and even a huge growth in user base would not reproduce large increases in revenue.
I am sure Facebook regarded India as a long term plan. In the last quarter, Facebook's average revenue per user in the U.S. and Canada was 8.5 times as much as that in the Asia-Pacific region. With foreign-exchange pressure and the mature market in the U.S. and Canada, that gap is actually widening. However eventually, that trend is bound to reverse and that is the point when India’s established user base would become a great growth driver for Facebook. For now however, how the firm goes about attracting those users, is up in a huge ball of smoke.