Wait A Minute. Facebook Has A Huge Problem

February 14, 2013 9:33 am

We were analyzing Facebook’s Q4 2012 results when we came upon something that could potentially be a huge issue in terms of Revenue growth and profitability for Facebook. It is an issue with ‘Asia and Rest of World’. What exactly is the problem?

Well, it is very simple actually: Facebook is struggling to improve the ‘Average Revenue Per User’ (ARPU) numbers for Asia and Rest of World; and that is precisely where its next billion users are going to be from. As it is, these are low ARPU users: for 2012, the ARPU of facebook users from US/Canada was $13.58, and for users from Asia was $2.35, and for rest of the world was $1.84.

That makes for interesting comparisons, like this one: A facebook user in the US is six times more valuable to Facebook than a facebook user from Rest of World – but here is the bigger point: the rate of growth of ARPU for Rest of World is slowing down. For instance, between 2010 and 2011, the Rest of World ARPU for a facebook user grew by 59.57 percent – but that growth rate dropped to 22.66 percent between 2011 and 2012. For Asia, the growth rate between 2010 and 2011 was 37.58 percent, and it dropped to 14.63 percent between 2011 and 2012. As a comparison, for the US/Canada Geography, the ARPU growth rate between 2011 and 2010 was 35.85 percent, and it dropped to 19.85 percent between 2011 and 2012. It is a significant drop, but not as dangerous as Asia and Rest of World.

Facebook might have done a great job in getting everyone to talk about facebook on mobile – but the reality is this: It has maxed out its ‘good ARPU’ users; the next billion users would come from a low ARPU pool; and the ARPU growth rate there is slowing down dangerously.

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