Facebook crosses billion threshold, on quest for growth

NEW YORK/SAN FRANCISCO Thu Oct 4, 2012 7:36pm EDT

Facebook Chief Executive Mark Zuckerberg gestures as he addresses students at the Moscow State University in Moscow October 2, 2012. REUTERS/Maxim Shemetov

Facebook Chief Executive Mark Zuckerberg gestures as he addresses students at the Moscow State University in Moscow October 2, 2012.

Credit: Reuters/Maxim Shemetov

Related Topics

NEW YORK/SAN FRANCISCO (Reuters) - Facebook Inc passed the 1 billion user mark in September, a level of global penetration that is a remarkable achievement for an 8-year-old social network and a heightened challenge to its quest for sustained growth.

Facebook, which has endured a bruising four months in the stock market since a haphazard May 18 initial public offering, has acknowledged that a slowdown in new-user acquisition is inevitable as its worldwide reach expands.

But doubts over whether the company can squeeze more and more dollars out of each network member - given well-publicized struggles to monetize the growing ranks of users who access Facebook from mobile devices - have shaved more than 40 percent off Facebook's value since its IPO, although shares still trade at a lofty 45 times projected 2012 earnings.

Thursday's announcement that Facebook crossed the billion threshold on September 14 confirmed expectations on Wall Street that growth is actually trailing off.

The latest quarter's growth appeared likely to come in lower in raw numbers, let alone by percentage, than the April-June quarter's 54 million new users. About 45 million joined from the start of July, when it had 955 million users, through September 14.

And the previous quarter was way down from the 102 million who joined during the first three months of 2012.

In an interview on NBC's "Today" show broadcast on Thursday, CEO Mark Zuckerberg was asked by co-anchor Matt Lauer how, with a billion users, the company wasn't "killing it" by making money.

"It depends on your definition of 'killing it.' I mean, we are making billions of dollars," Zuckerberg fired back.

In its last earnings report, Facebook said revenue increased by 32 percent to $1.18 billion in the second quarter. But that marked the slowest pace of quarterly revenue growth since the first quarter of 2011 - the earliest data available.

Founded by Zuckerberg in a Harvard dorm in 2004, Facebook took three years to reach 50 million users. By 2010, that hit 500 million. But with Google Inc launching its own social network and other services from Twitter to YouTube vying for Web surfers' time, the social network is keen to keep rolling out new products to keep its members engaged.

"The key, of course, is monetization of those users," Hudson Square analyst Dan Ernst said.

STUNG

Facebook, stung by criticism over the efficacy of its ads, concerns about its mobile business and questions over growth, turned on the charm in the past month.

Zuckerberg went on the offensive to soothe investors, making his first public appearance since the May IPO on September 11, confidently talking up the company's mobile prospects and hinting at new initiatives in search and e-commerce. It appeared to work, stemming the share price's slide below $18. The stock now trades above $21 - still well below its IPO price of $38.

Zuckerberg said his company's new mobile ads were delivering better results for advertisers than its traditional ads on personal computers.

In addition, this week, Chief Operating Officer Sheryl Sandberg and board member Marc Andreessen have appeared on the CNBC business channel and panels at a high-profile advertising conference in New York.

The company said on its website it now has 600 million mobile users, up from 543 million at the end of June.

"There's 5 billion people in the world who have phones, so we should be able to serve many more people and grow the user base there," Zuckerberg said.

As for his own phone habits, he said he owns several devices, and called an iPhone 5 he received personally from Apple Inc CEO Tim Cook "a wonderful device."

DWINDLING MORALE

Facebook's share price and persistent, skeptical scrutiny of the company have taken a toll on its employees, many of whom had counted on a big post-IPO payday. Zuckerberg acknowledged that morale at the company could be better but said its 4,000 employees remained focused on building and improving Facebook's products.

"We are obviously in a tough cycle now," he said. "That doesn't help morale."

Facebook has rolled out a spate of initiatives to spur more growth, including a new advertising platform and measurement methods to show marketers they are getting bang for their buck.

The company also said on Thursday it has seen 1.13 trillion "likes," or endorsements by users, since it launched the feature in February 2009. Many advertising campaigns that companies conduct on Facebook are designed to garner "likes."

But it is also exploring options beyond advertising, which accounted for roughly 84 percent of the total revenue in the second quarter. On Wednesday, the company also said it was letting U.S. users pay a fee to boost the visibility of their posting.

Last week, Facebook unveiled a feature that lets U.S. users buy and send gifts such as glasses, pastries and gift cards to friends - signaling its intent to play a bigger role in e-commerce.

On Thursday, Zuckerberg focused on what he called an historic milestone: connecting about one in seven people on the planet across both the developed and developing world.

Facebook's number of users is larger than other social media services such as Twitter, which has 140 million monthly active users, and Google+, the Internet search company's year-old social network, which has 100 million monthly active users.

Google's overall Internet properties, including video website YouTube, garnered 1.16 billion unique visitors in August, according to data analytics firm comScore.

Facebook was the world's No.3 most visited Internet property, behind Microsoft online properties, with 821.5 million monthly unique visitors in August, according to comScore's figures, which do not include users accessing websites on mobile devices.

The median age of Facebook's users is 22. The five largest user countries, which the company listed alphabetically, are Brazil, India, Indonesia, Mexico and the United States.

"Helping a billion people connect is amazing, humbling and by far the thing I am most proud of in my life," Zuckerberg said in his blog post.

(Additional reporting by Jennifer Saba and Phil Wahba in New York and by Alexei Oreskovic in San Francisco; Editing by Edwin Chan, Gary Hill)

FILED UNDER:
We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/
Comments (9)
reality-again wrote:
“…1 billion active monthly users threshold last month, ”
By ‘active monthly users’, FB understands ‘user accounts’, such as anyone can create as many as they wish, for whatever personal or commercial purpose they need to use multiple FB accounts.

Oct 04, 2012 9:56am EDT  --  Report as abuse
ScroogeYou wrote:
How many of those billion are underage kids too young to have an account but who lie in order to gain access? I know of at least 40 kids too young for FaceBook but that have accounts because they lied and said they were older. I also know that despite my daughter having her own account, there is another account in her name which some bullies are using to harass her. How many fake accounts are out there? I wouldn’t be surprised to find out if it were as high as 10%. Combine that with the number of users who are only occasional users and FB really isn’t worth all the 1′s and 0′s in the world.

Oct 04, 2012 10:04am EDT  --  Report as abuse
reality-again wrote:
ScroogeYou,

10% fake accounts in social media is not a realistic assessment, according to my experience as an advertiser in this field.
I’ve been advertising in various social media for nearly a decade now, and analyzing clicks and impressions (a.k.a ‘eyeballs’) reports, as well as content.
My conclusion is that 90% fake accounts, in average, is the figure that best matches reality for this field. By fake I mean any additional user account per person or company, after their initial user account has been created.
The reasons for that are multiple, and vary from one website to another, and from one user to another.
Without going into details, they all fall under the broad category of ‘Human Nature’.
More specifically, and phrased in economic terms: If anyone has something to gain from creating additional user accounts on a certain website, they’ll keep doing it until their marginal returns no longer justify the effort required to create the next fake user account for themselves, or the company for which they work.
I find no reason to assume that FB is much different from other, big and small social websites, and I’m still waiting to see the results of an independent, unobstructed, objective and professional audit of their large database of user accounts.

Oct 04, 2012 12:06pm EDT  --  Report as abuse
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.