Facebook (FB, Financial)’s stunning growth has been fueled by user base expansion in Asia-Pacific and Rest of the world, while growth in developed markets such as North America and Europe has come down to single digits. But a closer look at Facebook’s numbers reveal that the world’s number one social media platform continued to entrench itself deeper in North America and, in the process, build a huge moat around itself.
The U.S. population has been growing in the less than one percent range since 2000, slowly edging lower and lower through the years. It is still expanding, but at a very slow rate. Canadian population growth has been a little higher than that of the United States, but only by a few basis points. Both these countries are highly developed nations, and its natural that their population growth has slowed down to a crawl.
For any social media company, the potential market size in developed countries will be limited. There will be a an initial phase of strong growth, followed by steady growth and then things will start moving sideways where there will be few years of growth peppered with a few years of decline.
But despite its ever increasing penetration in the U.S. and Canadian markets, Facebook has defied conventional wisdom and kept moving its ceiling further and further up.
At the end of fiscal 2013 Facebook had 201 million monthly active users in North America, a sizeable penetration considering that the total population in the region was only 351 million at that time.
Naturally, growth should have slowed down to a crawl right then, but Facebook has expanded its North American user base in the 3% to 6% range since then, a phenomenal achievement because penetration has increased from 57% to 65%.
There could be several reasons for why this is happening. It could be the network effect of the existing userbase bringing in more people to the fold, leading to even more people later on. Or it could be users opening multiple accounts, which a lot of businesses and brands do these days.
But whatever reason users may have had to open new accounts, it’s clear that Facebook has worked hard to put itself in that position where, it has made the user think that spending extra time and effort on Facebook is beneficial to them.
The fact that Facebook’s monthly active user base has expanded by 4.42% during the second quarter of 2017 compared to the prior period is a clear indication that Facebook is far from running out of breath in this crucial market.
If Facebook continues to increase its penetration in developed markets, the opportunity for any competitor to enter becomes that much smaller, simply because it will never be able to match the size, scale and reach that Facebook will provide for advertisers in these markets.
Disclosure: I have no positions in the stock mentioned above and no intention to initiate a position in the next 72 hours.
