How Much Will Asia-Pacific Contribute To Facebook’s Revenue Growth Through 2019?
Facebook (NASDAQ:FB) has reported a strong growth in revenues in recent years, driven by a massive acquired user based and the company’s ability to effectively monetize that user base. Facebook’s global user base has more than doubled in the last five years to over 2 billion active users in 2017. Moreover, net revenues have increased nearly tenfold in the same period, driven by a solid increase in global average revenue per user (ARPU) from $4.36 in 2012 to $19.60 in 2017. While this trend is expected to continue in the near term, Facebook’s stock took a hit in recent weeks after the Cambridge Analytica scandal surfaced.
Despite the massive backlash faced by the company from users, we believe that Facebook 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 net revenue is set to increase from $40.6 billion in 2017 to over $60 billion by 2019 due to improving monetization metrics complemented by an increasing user base. Of the $20 billion added to net revenues, we estimate that the company’s Asia-Pacific advertising segment will contribute around $5.2 billion, or over 26% of the incremental revenues, with Facebook’s user base in Asia-Pacific expected to continue to grow rapidly with the increasing penetration of smartphones and high-speed internet in the region. 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 Asia-Pacific segment to gauge how changes will impact its expected revenue.
Key Growth Drivers For Asia-Pacific
Facebook’s total advertising revenues have increased at around 50-55% in each of the past three years. Growth rate of revenues from Asia-Pacific has remained high at over 55% on a year-over-basis in the same period. Asia-Pacific advertising revenues surged from $1.7 billion in 2014 to $6.7 billion in 2017. The consistent increase in both average revenue per user (ARPU) as well as the total number of active users drove this revenue growth.
The total active users in Asia-Pacific have increased at over 20% in recent years from 420 million in 2015 to 775 million in 2017, largely due to the large addressable market in the region. Consequently, Asia-Pacific is the largest regional segment for Facebook in terms of users. Furthermore, smartphone and high-speed internet penetration in the region helped drive the growth in the user base. We expect this trend to continue, albeit at a slower rate due to the high base factor and saturation in many markets.
On the other hand, ARPU in Asia-Pacific (<$10) is much lower than Facebook’s ARPU in U.S. and Canada ($82) and Europe ($27). This means that there is a strong potential to increase this going forward. In the next two years, we expect Asia-Pacific ARPU to increase from $8.70 in 2017 to $13 by 2019. Consequently, Asia-Pacific revenues are expected to increase at 32-33% in the next two years to almost $12 billion by 2019.
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