Facebook Expected to Lose Millions of Users Under 25 in 2018

Facebook (NASDAQ: FB) started off as a social networking site exclusively for college students. But 14 years later, many young people say that older people have taken over Facebook, so they're migrating to Instagram and Snap Inc.'s (NYSE: SNAP) Snapchat.

While Facebook is still adding users each month, they're mainly from the older age bracket, according to a new report on U.S. social network usage from eMarketer. That's not good news for a tech company that envisions itself at the forefront of the market beyond the next five to 10 years.

Facebook could lose 2 million U.S. users under 25

Facebook, once the go-to place for millennials and even younger generations to post photos and updates, is expected to lose 2 million U.S. users under age 25 in 2018, according to eMarketer. While people have been saying for some time that Facebook is shedding younger users, it's happening at a faster pace than previously expected.

Put another way, only half of U.S. internet users from ages of 12 to 17 will use Facebook in 2018. You might say that's fine because they're just fleeing to photo-sharing app Instagram, which Facebook owns. However, Snapchat appears to be taking more users than expected.

Even though Facebook continues to add older users each month, the growth isn't all that impressive. Facebook is expected to reach 169.5 million users in the U.S. this year, which would represent less than 1% year-over-year growth.

In addition to the paltry overall growth in Facebook's users, eMarketer expects the number of users among 12- to 17-year-olds and 18- to 24-year-olds to decrease by 5.6% and 5.8%, respectively. And Facebook usage for those under 12 is expected to decrease by a stunning 9.3% this year.

Is Snapchat more of a threat than previously thought?

The scariest figure for Facebook is how many of these younger users in the U.S. are opting for Snapchat instead of Facebook or even Instagram.

Snapchat is expected to add 1.9 million users under 25 this year, and Instagram is predicted to add 1.6 million in that same age group. Just because Snap's stock hasn't had a great year doesn't mean young people don't still use it and like it.

Of course, Instagram is bigger than Snapchat and many young people are already on the platform. Instagram is expected to hit 104.7 million U.S. users in 2018, up 13.1% from last year. While Snapchat is slated to record 86.5 million U.S. users, up 9.3% year over year. But Snapchat is having the opposite problem of its peers: It wants more older users.

Snapchat is popular with young people, but it needs older demographics to join to show continued growth. That's part of the reason Snap has been rolling out a redesign. Those changes have already led to a dramatic increase in time spent on the app among users over 35, according to comments from Snap CEO Evan Spiegel on the fourth-quarter earnings call.

"We believe that the redesign has also made our application simpler and easier to use, especially for older users," Spiegel said.

The only issue with appealing to users over 35 is that Snapchat runs the risk of becoming a place overrun by parents and grandparents — the same place Facebook finds itself in now — thus prompting younger users to flee again to a safe space.

Facebook admits engagement is down

In its latest earnings report, Facebook admitted that daily active users (DAUs) declined by 700,000 in the U.S. and Canada for the period. In addition, the amount of time users spent on Facebook declined by an incredible 50 million hours per day for the last quarter.

The company says the drop in time spent on the platform is due to changes it's made recently to help improve the overall Facebook experience and respond to criticism that the platform was designed to be addictive.

Looking at global figures, Facebook's DAUs still managed to jump 14% year over year to 1.40 billion for the quarter. Facebook doesn't expect the DAU decline in the U.S. and Canada to be an ongoing trend, CFO David Wehner said on the earnings call. However, he said that figure may fluctuate, especially because of the high market saturation.

Can making Facebook more 'meaningful' help?

Facebook is in a bit of trouble for aiding the spread of fake news, for being an addictive time waster, and for losing its spot as the go-to social media platform for the coveted below-24 age group. The question for Facebook is much the same as for Snapchat: Can a redesign fix its problems?

CEO Mark Zuckerberg says Facebook is concentrating on making interactions on its site more meaningful. The company has been experimenting with a number of initiatives, such as showing fewer viral videos on people's News Feeds and even experimenting with a "downvote" button to indicate when comments are offensive, misleading, or off topic.

The point is that Facebook isn't sitting back and waiting for its troubles blow over, as Zuckerberg seemed dangerously close to doing after the 2016 U.S. presidential election, when he pushed back on criticism about Facebook's role in the spread of fake news. In the last earnings call, Facebook executives mentioned the word "meaningful" 19 times. Their new mission is clear, but the jury is still out on whether it can change old habits and still keep its users engaged and growing.

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Natalie Walters has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Facebook. The Motley Fool has the following options: short March 2018 $200 calls on Facebook and long March 2018 $170 puts on Facebook. The Motley Fool has a disclosure policy.