Is a drop-off in teens really a big deal for Facebook?

A small decline in teen usage isn't a sure sign of Facebook’s demise. After all, the company's new technologies go way beyond 'I love my BFF' status updates.

By Benzinga Oct 31, 2013 2:00PM

Girl browsing social media using a laptop (© Brendan O'Sullivan/Getty Images)By Tim Parker

Let’s call it what it is before we examine the market noise that followed Facebook's (FB) earnings release.

It was good -- not great but really good. Facebook looks healthy by all meaningful metrics and that's why the stock was up huge following the release.

The numbers look like this: Earnings per share (EPS) came in at $0.25, higher than the expected $0.19. Revenue was $2.02 billion -- also higher than the expected $1.91 billion.

Average users numbered 1.19 billion -- higher than 1.115 billion in the second quarter -- and daily active users were 728 million versus 699 million in Q2.

Net income was $425 million and mobile accounted for 49 percent of revenue. Put all of these metrics in chart form and what you see is a chart that starts at the lower left and ends at the upper right. In other words, growth -- a lot of growth.

According to COO Sheryl Sandberg, ad revenue grew 66 percent to $1.8 billion and for the first time ever, statistics show that people will spend more time in digital media than with TV.

CFO David Ebersam said, "Daily actives on the web declined year over year." This wasn't a big deal to investors since all metrics show a migration to Facebook's mobile platform.

But what sent the stock off of its highs and has everybody talking is this comment: "We did see a decrease in daily users partly among younger teens."

He went on to say, "This is of questionable significance . . . but we wanted to share this with you now because we get a lot of questions about teens."

Equally interesting was his line that the company finds it difficult to measure that metric. In fact, his exact words were, "This is a hard issue for us to measure."

Why it's a hard metric to measure is unclear given Facebook's insight data that measures demographic data and makes it available to pages.

But how important is this announcement? Wall Street thinks it's highly significant, but as Facebook transforms and further develops its artificial intelligence technology that allows it to recognize voices in video, its graph search, and continues to take active steps to bring more people to the Internet worldwide, is a small decline in the 13-year-old demographic the first sign of Facebook’s demise?

The company is clearly developing technologies that make it more than a place for selfies and "I love my best friend" status updates.

On the other hand, that metric might be a huge deal -- but investors aren't sure, and that's why the stock is well off its after-hours highs.

But looking beyond the noise, it was a good quarter for Facebook. As an investor, that teen metric might mean something if it's part of a retirement portfolio. For a trader, Facebook looks great going forward.

Disclosure: At the time of this writing, Tim Parker had no position in any of the companies mentioned.

Read more from Benzinga:

Oct 31, 2013 3:39PM
Coincidental timing for this article because my teen daughter gave me a stock tip just 2 days ago. She said that I should try to buy stock in Instagram because teens are leaving Facebook and going to Instagram ... thinking that was good insight I looked up Instagram and found out Facebook now owns them sooooo teens are actually leaving Facebook and joining ... well ... Facebook just under a different name - same company - different pocket.
Nov 7, 2013 4:49PM
They claim to have 1 billion users and yet only produced 1.8 billion in ad revenue.  Those are actually really shitty numbers.
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