Should Facebook Worry About a Huge Plunge in This Key Demographic?

Teens could be done with Facebook for good, according to a new Piper Jaffray survey that reveals that only 45% of 13- to 19-year-olds still used the site, down from 72% a year earlier. The survey polled 7,200 students with an even distribution according to gender and household income.

Facebook CEO Mark Zuckerberg. Source: Wikimedia Commons.

This isn't the first time Facebook has waned in popularity among teens. Last May, a study from the Pew Research Internet Project indicated that teen interest in the site was sliding, although a report from Forrester Research earlier this year contradicted those findings. While those year-to-year inconsistencies could be due to the fickle nature of teen users, a 37.5% decline in interest is worrisome, especially after those teens become young adults.

Therefore, let's look at where teens are going instead, and how much of this exodus actually matters to Facebook.

The "new" Facebook for teens is owned by Facebook

Piper Jaffray's survey found that most teens flocked to photo- and video-sharing site Instagram, which is owned by Facebook. Teen usage of Instagram rose from 69% last year to 76% this year.

A popular theory regarding the decline of Facebook is that parents have joined the network to keep tabs on their kids. According to the Education Database Online, 43% of parents check on their kids' Facebook profiles daily. The study also revealed that between 2010 and 2012, the number of moms using Facebook surged from 50% to 72%.

That trend likely pushed kids to flee Facebook and share their photos on Instagram instead. As a result, CEO Mark Zuckerberg's $1 billion acquisition of Instagram in 2012 -- which many ridiculed at the time -- turned out to be a pretty smart move. Between February 2013 and March 2014, Instagram's active users doubled from 100 million to 200 million. By comparison, Facebook's user base only edged up from 1.16 billion to 1.32 billion over the past year.

This "illusion of choice" that Facebook gives its users is exactly why it acquired WhatsApp for $19 billion , yet kept its 600 million monthly active users separate from the Messenger app. That way, those who don't like using Facebook Messenger for all their messaging purposes (for example, teens avoiding parents) could access an alternative platform.

Would a teen exodus hurt Facebook's long-term plans?

Teens leaving Facebook hasn't affected the social network's year-over-year growth for a simple reason -- it's being taken over by older users. A January 2014 study by iStrategyLabs revealed how striking this trend was.

Age group 13-17 18-24 25-34 35-54 55+
2011-2014 growth (25%) (7.5%) 32.6% 41.4% 80.4%

Source: iStrategyLabs.

While that drop-off in younger users is disappointing, Facebook investors should remember that ads generated 92% of the company's revenue last quarter. Even as younger users stopped using Facebook, its advertising revenue rose a whopping 67% year over year to $2.68 billion last quarter.

The reason is simple -- younger users, for all their hipness, don't have as much spending power as older users. According to a Nielsen and BoomAgers report, baby boomers are expected to control 70% of all disposable income in the U.S., and purchase 49% of all consumer-packaged goods, between 2012 and 2017. This means Facebook's steep growth among older users actually makes it a more lucrative platform for advertisers.

What happens when young non-Facebook users grow up?

While some pessimists believe the teens who have abandoned Facebook will never return, I believe that the opposite is true.

After teens grow up and get jobs as young adults, their relationships with their parents and relatives will change. The same teens who were embarrassed to share their photos and daily musings will more likely come back to Facebook to keep in touch with their parents. When those young adults get married and have kids of their own, that cycle will reboot as they start "checking up" on their own kids.

A Foolish final thought

Investors should remember that Facebook has only been around for a decade. A standard generation lasts 25 years, so we haven't even seen half of a full growth cycle for the social network yet. Teen user-ship numbers will inevitably fluctuate over the years, but older users will keep offsetting those losses. Moreover, more older users will generally attract more ad revenue, which should help the company's top line continue growing into the foreseeable future.

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The article Should Facebook Worry About a Huge Plunge in This Key Demographic? originally appeared on

Leo Sun owns shares of Facebook. The Motley Fool recommends Facebook. The Motley Fool owns shares of Facebook. Try any of our Foolish newsletter services free for 30 days . We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy .

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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