Facebook Stock: Can Facebook Inc. (FB) Sustain The Impressive Revenue Growth?

  • Facebook’s user base in mature markets is slowing down, but ARPU is not.
  • A rapidly growing advertiser network is supporting revenue explosion.
  • What other strategies is the company exploring?

Facebook Inc.'s (NASDAQ:FB) revenue growth has been stunning for the last few years. But the most interesting part of the rapid growth is that it has been able to sustain these growth rates even as the revenue base has become huge, instead of allowing it to be a drag on it.

Facebook annual sales - 2008 - 2015 - 1redDrop.com

As Facebook continues to expand its user base, the growth rate in developed countries will naturally slow down in comparison with highly populous emerging economies. Add a strong dollar to that mix and what you have is an international ARPU (average revenue per user) that’s much lower than that of the U.S. and other developed markets.

Surprising ARPU Trend in Developed Countries

So the natural trend should have been slower revenue growth as user base stagnates in developed markets and accelerates in developing markets. But Facebook managed to do the exact opposite, and one of the biggest factors contributing to such growth is their increasing ARPU in the United States and Canada.

Facebook average revenue per user (ARPU) by region - Q2-14 - Q3-16

Facebook’s average revenue per user has grown considerably in the last few years, and it has grown across all regions. But if you look a bit closely, the ARPU in two developed markets - US/Canada and Europe - has nearly doubled in a span of eight quarters.

Also read: Facebook Inc. (FB) Stock Is On Its Way To $150+ A Share

The monthly active user base - a key metric - is growing at below the ten percent level in North America and Europe, while growing at near-20% levels in APAC and Rest of the World. However, by increasing their ARPU in developed economies, Facebook made sure that its overall sales numbers kept improving at above 40% levels for the last three years.

Growing Advertiser Network

Facebook’s ever-increasing advertising network has played a huge role in increasing their numbers, and the company has also benefited from Twitter’s below-par performance. As the only social media platform that is showing strong user growth, advertiser demand has obviously shifted towards Facebook.

The addition of Instagram’s monetization is another major factor, and the hugely popular photo/video sharing application recently crossed 500 million users, further increasing Facebook’s attractiveness quotient from an advertiser’s standpoint. The company proudly announced earlier this year that it crossed 4 million advertisers on its ad network.

Service Expansion

Facebook has been steadily expanding its services as well and is on a standalone app launching spree. After forcing users’ hands to install Facebook Messenger, Facebook added several apps in the last few weeks. The recently launched Workplace app is a great example of Facebook’s strategy to keep its revenue clock ticking at a fast pace.

The Workplace app aims to connect co-workers and allow them to collaborate in an office setting, while also enabling companies to collaborate with other companies. This is Facebook’s first serious attempt at entering the enterprise segment, which might well lead it to consider building its own office productivity applications. The company has launched the application with a tiered pricing range of one to three dollars per user depending on how many people in the company are active on the app in any given month.

Also read: Facebook Inc. (FB) Stock Will Rise Above $175

By utilizing their user base and reach as the key central themes, Facebook is trying to build applications for specific purposes. The app can then be monetized using the existing advertising network. Where that is not possible, Facebook will take the subscription route. Either way, they make more money at the end of the day.

As such, Facebook’s strategies are centered on its multiple user bases, and the number of initiatives the company is launching will enable revenues to keep growing for the foreseeable future. This is not a company you want to let slip between your fingers. Add to your position when you can, but also be aware of the high valuation. The only way to invest in Facebook Stock is for the long term.

Also see: The latest top technology stock picks from Amigobulls.

Shudeep Chandrasekhar Shudeep Chandrasekhar   on Amigobulls :
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