What The 2 Billion User Milestone Means For Facebook

Recently Facebook (NASDAQ:FB) announced that it had reached the 2 billion users milestone. The company added one billion users in the last five years, and this milestone makes it the largest social media app in terms of logged-in users. While this makes Facebook fairly ubiquitous on the internet, as more than 50% of global internet users are now on Facebook, this growth might not impact the company’s advertising revenues significantly. Facebook derives a significant portion of its revenues from North America, where the average revenue per user (ARPU) is likely to be around $69 in 2017. This is significantly higher compared to the average revenue per user of $9.23 in international markets. We expect this gap to continue in the next few years, as the average revenue per user grows for both geographies.

Facebook’s international user base is nearly 5 times the size of its U.S. and Canada user base. In the last decade, the company added 746 million users in regions outside the U.S.  and only 41 million in the U.S. and Canada. With significantly lower ARPUs in regions outside of the U.S., this user growth does not translate into significant growth in advertising revenues. While we expect Facebook’s international user growth to continue at a steady pace, growth in the U.S. and Canada is likely to slow down over our forecast period.

Higher Responsibility, Saturation In Key Revenue Generating Market

As Facebook’s user base continues to grow, and many users rely on Facebook for information, the company has a responsibility to ensure that its content is not fake or misleading. With millions of users posting on its platform every day, it is difficult and expensive for the company to control fake news. Further, the company’s reputation took somewhat of a hit due to recent tragic events and inappropriate content being streamed via Facebook Live, which is difficult to control with such a a large user base. As the company continues to grow its user base, it will need more tools at its disposal to maintain oversight of the content posted on its platform. However, as many of the new users don’t necessarily add significantly to advertising revenues, this user growth is somewhat of a double edged sword in that the aforementioned tools will likely be fairly costly to deploy. The growth in its key revenue generating market – U.S. and Canada – is slowing down, and the company’s News Feed is becoming somewhat saturated. Accordingly, the company likely needs to find alternative ways to increase advertising slots to grow revenues from these markets.

The 2 billion user mark is a significant milestone for Facebook as it cements the company’s position as the leading social media platform. However, this also increases costs associated with ensuring that the content on the platform is reliable without adding significantly to its advertising revenues.

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