In addition to its earnings, Facebook provided details of its regional user base numbers, as well as average revenue per user (ARPU) by region. Predictably, Facebook claims that its highest user growth regions are Asia and rest of world. However, Facebook’s data also demonstrates a disparity between user growth and ARPU in these regions. While user growth continues to rise, outpacing its other regions, revenue in these regions remains low.
Over the past nine quarters, Facebook’s monthly active users in Asia has increased 166% from 96 million to 255 million in the second quarter 2012. Asia region daily active users increased 187% over the past nine quarters, from 45 million to 129 million. Rest of world region shows similar growth trends: monthly active users increased 173% (98 million to 268 million), while daily active users increased 231% (42 million to 139 million).1
While Facebook shows a consistent increase in user base in Asia and rest of world during the last nine quarters, ARPU has grown less consistently. During the second and third quarter 2010, Facebook generated $0.36 per user in Asia. At its height, the company earned $0.56 per user; however, during the first quarter 2012 Facebook earned only $0.53 per user, and during the second quarter 2012, that number increased only slightly to $0.55 per user.
Facebook’s rest of world region shows similar ARPU trend; however, ARPU seems to be growing slightly more consistently than Asia. During the second quarter 2010, Facebook earned $0.23 per user in the rest of world region. By the fourth quarter of that year, ARPU had swelled to $0.33. During the subsequent five quarters, Facebook’s rest of world ARPU fluctuated between $0.37 and $0.44.
It is perhaps too early to recognize any patterns in revenue generation. Facebook’s ad revenue (the largest portion of its overall revenue) is likely subject to seasonality, but it is unclear at this time how seasonality affects regional segments of the user base. When comparing revenue in Asia and rest of world to its more mature regions, however, it is clear that Facebook is doing a poor job of monetizing the fastest growth segments of its user base. The aforementioned regions still generate far lower ARPU than North America and Europe regions.
We should expect some disparity between ARPU and user base growth. As the aggregate user base increases in Asia and rest of world, ARPU will grow more slowly because the average user in Asia and rest of world has less money to spend. However, Facebook’s inability to meaningfully increase revenue from either Asia or rest of world could prove problematic once user base growth plateaus as it has in North America.
Not only is Facebook’s ARPU much lower in Asia and rest of world than in its other regions, but Facebook’s overall revenue in these regions is much lower than North America and Europe. Moreover, Facebook appears unable to meaningfully increase revenue in these regions, where growth has essentially stopped over the past four quarters. For example, Asia revenue rose to just $135 million in Q2 2012, up from $118 million in the previous quarter.
Facebook also faces another challenge: China. Facebook does not currently operate its social network in China, and the company has intimated that it does not currently have a plan to deal with China. This is unfortunate, because China represents Facebook’s biggest market opportunity from a user base standpoint. And with China’s rising median income, it could also be a very profitable expansion for Facebook.
While noting the disparity between user base growth and ARPU is important, it is not altogether unsurprising. Many of the users in these growing regions are mobile users, meaning that Facebook’s larger problem of mobile revenue generation could partially account for disappointing ARPU. Moreover, Facebook’s user base in Asia and rest of world regions still stands to grow to a larger percentage of its overall user base, meaning that Facebook should still see near term revenue growth.
- Earnings Slides, Facebook Inc., 2012.