Nasdaq's big screens on Times Sq show Mark Zuckerberg ringing the opening bell as his company went public - Image credit: Getty Images via @daylife  It is clear by now for most Facebook investors that monetization is definitely a problem, and that buying the stock is a bet on the future. With a market capitalization of $104 billion, after pricing its IPO at $38, Facebook’s market capitalization is roughly half of Google’s, but the social network generates six times less revenue per user, according to research by Enders Analysis. Top-line growth fell sequentially for the first time in the first quarter, as growth shifts to faster-growing but lower-paying emerging markets and users in saturated “mature” markets increasingly move to mobile.  As these trends continue to express themselves, growth will slow further. There are several opportunities for Mark Zuckerberg and his team, from socially-optimized search ads to the development of a network akin to Google’s AdSense. Until they manage to pop open a new revenue stream, Facebook will have a hard time growing its margins.  Facebook’s slowing revenue growth unveils its major challenges. Revenue grew 45% year-over-year in Q1, marking the fourth consecutive quarterly slowdown; Q1 was also the first time sequential revenue fell, sliding 6.5% to $1.058 billion. The company noted its audience grew 56 million to 901 million by the end of Q1, reaching 55% of the global PC-audience (71% if you exclude China, where Facebook is blocked, along with Twitter, Google, and others).  Despite healthy growth in its user base (about half them log on daily), Facebook’s impressive reach in mature internet markets (U.S., U.K., etc) means those have become saturated. Growth will now come from overseas, which is actually problematic.  According to Enders, there’s “huge variation in the relative value of Facebook users in different regions, with North American users generating 2x the revenue of users in Europe, 5x the revenue of Asian users and nearly 8x that of users in the rest of the world (Latin America, Middle East and Africa).” For example, average revenue per user (ARPU) in North America was 95 cents in Q1, compared with 47 cents in Europe, 18 in Asia, and 12 in the rest of the world.  “High-growth” economies will continue to feed Facebook with users, taking its base north of a billion by the end of the year (according to Enders). But lower disposable incomes, higher income inequality, and poorer internet infrastructure means it’s harder to monetize, invariably dragging down Facebook’s top-line.  The second big problem is at the core, in the U.S. Ad revenues per hour have been falling for the last two years, hitting 14 cents in 2011. Facebook’s share of internet display ad spend has risen to 14.3%, in tandem with the social network’s share of total time spent online (14.4%). Facebook’s opportunities for monetization are limited in this market, according to Enders:  Facebook’s ad revenue per hour in the US is roughly the same as for the overall internet display market, indicating that monetization [sic] is lower than that of other ad-supported websites, since many do not carry ads (see Figure 4). Furthermore, it has been falling for the last two years and is generating roughly the same revenue per hour as TV, suggesting that the potential for further growth is limited.  Mobile presents another obstacle for Zuckerberg. Along with the general adoption of smartphones, Facebook has seen its users increasingly access their profiles via mobile devices, with 488 million of them (or more than half the total audience) having logged on in March (compared with 42% in 2011 and 30% in 2010).  This has driven lower-paying traffic, though. Estimated mobile display spend in the U.S. was around $500 million last year, compared with $11.1 billion for the PC-display market. Time spent on web-connected browsers and apps on mobile devices was only 15% of the amount spent on their desktop computers, Ended estimated. “Based on these figures we estimate that display ad spend per hour via mobile devices is only a third of that to the PC,” they added.  As users increasingly switch to mobile, Facebook will have a harder time cranking out revenues. Zuckerberg’s company just started selling mobile ads in March, but it will have to step it up if indeed mobile monetization is its number 1 priority, as they’ve said in the past.  Facebook is still below Yahoo in monthly ad revenue per user (36 versus 60 cents) but has outpaced it in display ($0.36). In comparison, Google rakes in $2.18 per user. Growth, while remaining impressive, will slow, as the aforementioned trends play out. The silver lining is that there are many opportunities for Zuckerberg and his team to increase revenue.  Socially-enhanced search is the obvious option. Figuring out mobile is another venue, while developing a sort of Google AdSense network, “leveraging the huge number of third-party websites that feature Facebook’s ‘like’ button” presents an interesting opportunity.  The success of social games, evidenced by the rise of Zynga, suggests Facebook can tap other digital products and services to make money. “The rollout of media apps with a number of news, music and video companies and launch of Facebook’s mobile app store are clear signs of intent,” explained the analysts. Trying to step into LinkedIn’s territory with a more “professional” network is also a possibility. Facebook could also charge companies using the social network to market themselves (estimates show there’s around 15 million such pages, so if Facebook charged each $10 per month, that would be $1.8 billion a year, about 50% of 2011 revenue).  Facebook will suffer from slowing growth and probably lower margins. The opportunities to avoid that fate are there though. Now, it’s a matter of Zuckerberg making it happen.
Facebook's awaited IPO is finally here, and after all that hype, the stock isn't really doing much.  Mark Zuckerberg's company faces the deadly-tech challenge of slowing growth, as users move onto mobile devices and the user base expands in low-paying emerging markets.