- By Sangara Narayanan
Facebook's (FB) annual revenue has been growing at strong double-digit rates for the last five years. There were several factors that played crucial roles in helping the company more than double its revenue every two years, such as strong user base growth all around the world, the expansion of average revenue per user and increasing mobile advertising revenue.
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The intrinsic value of FB
Facebook surprised many during the third quarter earnings call, when CFO Dave Wehner tried to reign in future growth expectations about the company:
"As I mentioned last quarter, we continue to expect ad load will play a less significant role driving revenue growth after mid-2017. Over the past two years we have averaged about 50% compound revenue growth in advertising," Wehner said. "Ad load has been one of the three primary factors fueling that growth. With a much smaller contribution from this important factor going forward, we expect to see ad revenue growth rates come down meaningfully."
Facebook's average revenue per user (ARPU) witnessed strong growth over the last several quarters, growing from under $3 in the third quarter 2015 to above $4 during the most recent quarter. ARPU expanded in all regions including Asia Pacific, which increased from $1.39 to $1.89. Most of Facebook's earnings come from advertising, and ARPU will go up if Facebook keeps increasing the cost of advertisements or keeps increasing the number of advertisements it shows every user.
Both of those metrics cannot keep expanding forever, which is what Werner was getting at, and they will have to stabilize sooner than later. This means Facebook has to depend on user base growth to keep its revenue growth rate moving up. But Facebook, despite its user base size in excess of 1.7 billion users around the world, is still growing at double digit rates on this front.
Monthly active user addition, year over year, has actually accelerated during the recent quarters. Most of that growth is coming from Asia Pacific, which saw the company add 107 million users between the third quarter 2015 and 2016, compared to 95 million from Rest of the World (RoW), 27 million from Europe and 12 million from North America.
Size has actually helped Facebook expand into newer markets, and with no real competition to its platform in sight, user base growth should remain strong in the short to medium term.
But, as with the other two metrics, user base cannot keep growing forever. Sooner or later it will start reflecting the growth of internet penetration in emerging markets, as well as the global internet-using population as a whole. For now, however, there's enough room for growth before things start to slow down globally the way we're seeing in North America and Europe now.