Facebook and Instagram fret over losing teens to Snapchat and TikTok

Yeah sure, we would think and go back to doodling on each other’s notebooks. 

Now that I’m older, I better appreciate Mr. Smestad’s mantra: Kids are indeed the future. The point rings especially true in the world of business, where—as in much else—if you’re not growing, you’re dying. Youngsters are ripe to develop new habits and brand affinities, to start earning money, and to begin spending it on shiny new products and services. They’re trend-setters, and companies ignore them at their peril. 

Facebook CEO Mark Zuckerberg wasn’t in my class, but a great deal of his entrepreneurial success can be attributed to internalizing a similar philosophy. He has long prized teens’ attention, a priority that helped Facebook expand from colleges to high schools and then on to global domination. His paranoia over relevancy was core to the logic for buying Instagram in 2012 for a then-astonishing $1 billion, and for offering billions more to buy Snapchat, despite being rebuffed, a year later. It’s also why Facebook launched Snap-copycats, like the failed app Poke, and the more recently successful disappearing photo-feature Instagram Stories. 

All that effort may be coming up short though. Facebook is still, with nearly 3 billion monthly active users and $86 billion in revenue last year, an absolute juggernaut, of course. But the company’s standing is slipping among younger generations—a great cause for alarm and anxiety for its executives, a New York Times report claims. Facebook products are struggling to win the zero-sum popularity contest among youths. 

It’s not just the big blue app that’s floundering. Even Instagram, long Facebook’s upstart bright spot, is facing headwinds. Most young teens say they prefer Snapchat (500 million monthly active users) and TikTok (1 billion) to Instagram (1.3 billion), as the Times notes, citing surveys from financial firm Piper Sandler. “Facebook has since abandoned aspirations of becoming a teen destination, just as Instagram has increasingly debated how to hang on to youthful audiences,” the Times says, citing internal Facebook marketing research.

A great deceleration may be imminent. Despite spending $390 million of advertising dollars primarily to win over young teens, Instagram is seeing the pandemic lockdown-fueled surge of teenage activity on its service slow down, according to the Times. “Teen time spent,” which measure’s the duration of teen eyeball capture, doubled to three-to-four hours over the past year, but it has recently “dipped,” the report said.

Teens are the engine of online culture and future commercial prospects. It’s unsurprising then to learn how deeply Facebook is worried that it may have lost its seat at the virtual cafeteria table, the one frequented by the Internet’s cool kids. A business—especially an ad business—that loses the teen vote risks losing its future.

Instagram Kids, Facebook’s in-development photo-sharing app for under-13-years-old, is on ice for now, while the parent company weathers a barrage of embarrassing leaks of its internal documents. But you can bet it is a ZuckPri of the highest order, Facebookese for a Zuckerberg priority.

Facebook’s future may depend on it. 

Robert Hackett
@rhhackett
robert.hackett@fortune.com

NEWSWORTHY

GameStonk. U.S. Securities and Exchange Commission has released its long-awaited report detailing what happened in January with the sudden run-up, and even faster decline, in GameStop shares that had been, in part, inspired by optimism about Chewy founder Ryan Cohen's new role with the company. The findings? Mostly that everything worked as it should have. The regulator raised questions about certain market practices, but largely poured cold water on the flurry of conspiracy theories since the meme stock episode. 

Apple chips. At its latest product reveal, Apple debuted a duo of MacBook Pro laptops, one 14 inches and the other 16 inches, that will be powered by one of the tech giant's two new chips. The upgrade is expected to lead to better graphic performance, faster video encoding, and improved operating speeds. Apple also unveiled a new set of AirPods that will be water resistant, have a longer batter life, and retail for a considerably cheaper $179. (Currently, AirPods Pro cost $249, while AirPods Max go for $549.) 

More Facebook Files. A set of new internal documents from Facebook reported over the weekend tell two very distinct stories, though interrelated as some of the latest revelations about Mark Zuckerberg’s family of social media networks. The first came in a report Saturday from the New York Times detailing how executives with Facebook were concerned about losing the “pipeline” of younger users on Instagram, with one document from 2018 calling it an “existential threat" (see above). And then, on Sunday, The Wall Street Journal added another report to its growing “Facebook Files” series, but this one focused on the company’s struggles with artificial intelligence—specifically, the fact that its AI only removes posts responsible for 3% to 5% of the views of hate speech on its platform. 

“Exculpatory evidence.” Congress has some questions about testimony Amazon executives previously provided in 2019 and 2020. Five lawmakers from both sides of the aisle sent a letter to CEO Andy Jassy on Sunday asking for “exculpatory evidence” that can corroborate what Amazon leaders, including Jeff Bezos, had said during testimony given at hearings held by the House Judiciary Committee’s antitrust subcommittee that were examining Amazon’s use of third-party seller data in its creation of private-label products.

Hollywood films on. On Saturday, the International Alliance of Theatrical Stage Employees, the union representing tens of thousands of behind-the-scenes film and television crew workers, tentatively agreed to a three-year contract with the studios and entertainment companies, likely averting a strike. Said IATSE president Matthew Loeb: “This is a Hollywood ending.” 

FOOD FOR THOUGHT

Uber is worth $91 billion. Should it be? Ride-hailing and food-delivery goliath Uber is facing a moment like never before. CEO Dara Khosrowshahi expects Uber, now worth some $91 billion, to finally turn an albeit adjusted profit next quarter—a long-awaited moment for the company in its years-long journey to prove its financial viability, the Financial Times reported over the weekend. And yet, uproar about the employment status of its gig workers and a flood of continued competition still weighs on the business.

From the article: 

Uber prefers to direct investors towards another number: adjusted editda, or adjusted earnings before interest, taxes, depreciation and amortisation. It sees this as a good proxy for the profitability of core services because it excludes non cash expenses and one-off charges. In the last quarter the number was minus $509m. In the next quarter, Uber says it could be positive. 

Adjusted numbers are popular with US companies because they allow them to create bespoke metrics. Companies say they can provide a clearer picture of how the business works. Mentions of adjusted ebitda during S&P 500 company earnings calls are up more than 50 per cent since 2015, according to Zion Research Group. Many look better than standard numbers. 

Angelo Zino, an analyst at CFRA, an investment research firm in New York, believes Uber’s adjusted ebitda figure demonstrates the company is on the right track. “Positive cash flow and GAAP profitability are more important, but this shows things are moving in the right direction,” he says. 

But Uber’s adjusted ebitda figure excludes stock-base remuneration, which was $272m in the last quarter. Dave Zion at Zion Research points out that in a tech company like Uber, stock based compensation is a very real cost of doing business as it forms a significant portion of employee pay. “Take away the stock compensation then see how many employees leave and how the business runs,” he says. 

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BEFORE YOU GO

Rotted fruit, dried-on dry erase boards, and ant colonies. Oh my! Heading back to the office soon? Be prepared. In its latest A-hed, The Wall Street Journal chronicles the mysterious and sometimes unsettling discoveries that workers are making in their returns to their desks, including ants eating thin mints, bee hives, and overgrown office plants.