My guess is that Zuckerberg is using semantics in this case. Teens have never claimed to stop using Facebook, but rather the group no longer uses it as much as in the past. Teens going off to college might log on every day to check on old high school friends, but they use the new social networks to communicate with the new college friends. In that way, Facebook might be a utility that remains useful for years, but it isn’t likely to take up the majority of teen time going forward.
The next Yahoo! or AOL, Inc. (NYSE:AOL)?
The common theme has been to compare Facebook to MySpace, but the likely comparison at this point is going to be Yahoo! and AOL, Inc. (NYSE:AOL). Both companies had vast networks of users that once dominated the Internet world. In the case of Yahoo!, it is in a battle with Google for the top spot in US web traffic. During July, Yahoo! had the most unique monthly users showing how Facebook can turn into a utility long-term.
Yahoo! has seen success of late, primarily from a set of Chinese assets that have soared in value. The company, though, only has a value of $30 billion, with revenue approaching $4.5 billion this year. For most of the last five years, the stock went nowhere and that’s what Facebook faces as it loses the teen crowd.
AOL has a stagnant revenue base as well, but its stock has traded mostly flat due to not having valuable investments. The stock only trades at roughly 1 times sales compared to Facebook now topping 10 times revenue. In addition, AOL has made several untimely purchases that haven’t worked out. The big Patch deal is at being partially wound down with up to 500 employees in the unit being laid off.
The big Huffington Post purchase isn’t seen as a success and big issues are already popping up regarding the recent deal to buy Adap.tv for $405 million. The company wants to make a push into programmatic video ads, but the Businessweek report suggests that Adap.tv has the most click fraud in the industry. .
Bottom line
For those investors jumping into Facebook at these levels, they need to keep in mind that the revenue base is only equal with that of AOL and Yahoo! combined, yet it has a market cap of three times those companies. Excluding the Yahoo! China investments, Facebook trades at 10 times those market valuations. With the developed world users peaking and the younger generation seeing it as only a utility, Facebook is not a stock to chase. Yahoo! and AOL provide examples when an Internet leader becomes a utility to the teen crowd.
The article Facebook Remains in Denial Regarding Teen Usage originally appeared on Fool.com and is written by Mark Holder.
Mark Holder and Stone Fox Capital have no positions in any stocks mentioned. The Motley Fool recommends Facebook and Yahoo!. The Motley Fool owns shares of Facebook.
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