How Much Will U.S. And Canada Contribute To Facebook’s Near-Term Growth?
Facebook (NASDAQ:FB) has witnessed a massive decline in its stock price, after reports indicated that data analytics firm Cambridge Analytica may have harvested data of around 50 million profiles from Facebook, which resulted in massive backlash against the company. Despite the current negative sentiment against Facebook (and some other tech companies), we believe that the company is in a strong position to add around $20 billion to its top line in the next two years.
According to our estimates, Facebook’s massive user base will continue to see growth in international markets and complement the consistently increasing realized revenue per user. As a result, we forecast Facebook’s net revenue to increase from $40.6 billion in 2017 to $60.7 billion by 2019. Of the $20 billion added to net revenues, we estimate that the company’s U.S. and Canada advertising segment will contribute around $6.8 billion, or nearly 35% of the incremental revenues. We have summarized our expectations on our interactive dashboard platform. If you disagree with our forecasts, you can change the key drivers – such as active users and average revenue per user (ARPU) – for Facebook’s U.S. and Canada segment to gauge how changes will impact its expected revenue.
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Growth Metrics In U.S. And Canada
Facebook’s total advertising revenues have increased at around 50-55% in each of the past three years. Revenue growth slowed down slightly from 57% in 2016 to around 49% in 2017. U.S. and Canada segment revenues also posted similar growth rates (55-60%) in 2015 and 2016 before slowing down to 44% in 2017. A key reason for that was the limited increase in average revenue per user (ARPU). U.S. and Canada ARPU has increased from $26 in 2014 to $60 in 2016, at a CAGR of 52%. However, ARPU increased “only” 38% to $82 in 2017 due to a high base factor. It is important to note that U.S. and Canada ARPU for Facebook is significantly higher than other regions such as Europe ($27), Asia-Pacific ($8.70) and Rest of the World ($6.10). Going forward, we expect ARPU growth to further slow down, with APRU increasing to around $105 by 2019.
On the other hand, total Facebook users in U.S. and Canada have increased at low single digits in recent years. We expect this trend to continue in the near term. Consequently, we forecast U.S. and Canada revenues to grow in the mid-to-high teens in the next two years. Advertising revenues from U.S. and Canada stood at $19.5 billion in 2017, estimated from the company reported ARPU and user base of $82 and 237 million, respectively. By 2019, we expect ARPU and user base to increase to $104 and $253 million respectively.
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