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Facebook (FB) Vies With Twitter for Elusive Demographic

NEW YORK (TheStreet) -- Facebook  (FB) has relaxed its privacy restrictions for teenage users amid concerns the social network is losing the demographic to Twitter (TWTR). As of Wednesday, users aged 13 to 17 have the option of sharing status updates publicly, lifting previous limitations of only being able to share with "Friends" and "Friends of Friends."

"While only a small fraction of teens using Facebook might choose to post publicly, this update now gives them the choice to share more broadly, just like on other social media services," the company wrote in a statement.

The social network continues to vie for the elusive adolescent demographic on news teens are migrating to alternative social networks such as Twitter and communication apps such as SnapChat.

In a September research note, Evercore analyst Ken Sena recorded accelerating traffic declines particularly among the 12-17 and 18-24 age groups which dropped 42% and 25% respectively. He noted, however, that Facebook's subsidiary business, Instagram, still showed strong traffic among adolescents and young adults.

During a second-quarter conference call in July, CEO Mark Zuckerberg denied reports of waning use among teens.

"We're close to fully penetrated in the U.S. teen demographic," he said. "The number of teens using Facebook on both a daily and monthly basis has been steady over the past year-and-a-half."

Regardless, Twitter's popularity as a Facebook alternative cannot be denied. In a recent Piper Jaffray study, the investment firm found 26% of adolescents preferred the microblogging site compared to 23% each for Facebook and Instagram.

Facebook shares gained 0.91% to $51.60 as of 11:14 a.m. ET. The S&P 500 is up 0.1%. Twitter is expected to list on the NYSE in November.

TheStreet Ratings team rates Facebook Inc as a Hold with a ratings score of C-. TheStreet Ratings Team has this to say about their recommendation:

"We rate Facebook Inc (FB) a HOLD. The primary factors that have impacted our rating are mixed -- some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its robust revenue growth, largely solid financial position with reasonable debt levels by most measures and impressive record of earnings per share growth. However, as a counter to these strengths, we find that the company's return on equity has been disappointing."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • FB's very impressive revenue growth greatly exceeded the industry average of 22.7%. Since the same quarter one year prior, revenues leaped by 53.1%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • Although FB's debt-to-equity ratio of 0.18 is very low, it is currently higher than that of the industry average. Along with this, the company maintains a quick ratio of 10.22, which clearly demonstrates the ability to cover short-term cash needs.
  • The gross profit margin for Facebook Inc is currently very high, coming in at 87.04%. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of 18.36% trails the industry average.
  • Powered by its strong earnings growth of 285.71% and other important driving factors, this stock has surged by 149.74% over the past year, outperforming the rise in the S&P 500 Index during the same period. Setting our sights on the months ahead, however, we feel that the stock's sharp appreciation over the last year has driven it to a price level which is now relatively expensive compared to the rest of its industry. The implication is that its reduced upside potential is not good enough to warrant further investment at this time.
  • When compared to other companies in the Internet Software & Services industry and the overall market, Facebook Inc's return on equity is below that of both the industry average and the S&P 500.

Written by Keris Alison Lahiff.

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