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Facebook Is Running Circles Around Everyone With ARPU

Mar. 02, 2021 12:14 PM ETMeta Platforms, Inc. (META)AAPL, PINS, SNAP, TWTR172 Comments
Eric Sprague profile picture
Eric Sprague


  • COO Sheryl Sandberg has consistently focused on improving Facebook ad products.
  • Facebook has high worldwide ARPU despite having a relatively low percentage of users in developed markets.
  • Ads on Facebook and Instagram become more relevant and effective every year.


My thesis is that Facebook (FB) has achieved a high average revenue per user (ARPU) due to their consistent focus and they are well positioned for it to continue climbing. One of the reasons I like the ARPU metric is that it discourages companies from inflating user counts. Bots and other fake users are all over the place; but if companies count them as real users, then their ARPU goes down.

The Facebook 10-K, Snapchat (SNAP) 10-K and Pinterest (PINS) 10-K all show annual worldwide ARPU directly. The Twitter (TWTR) quarterly releases don’t report it directly, but we calculate it based on quarterly ad revenue divided by quarterly monetizable DAUs. All 4 quarters are then added together:

ARPU for Facebook and competitors

Image Source: Author’s spreadsheet from 2020 10-K filings

There are 2 factors that show why Facebook’s lead is even wider than what we see above. The first is the way in which users are defined and the second is geography.

User Definitions Impact ARPU

Sometimes hyperbole is used rather than veracity when it comes to user counts but ARPU is a great equalizer. Being the denominator of ARPU, the user count is a key part of the ratio and ARPU goes up if smaller user counts are used. In the case of Facebook and Pinterest, they use monthly active user [MAU] counts which are larger than daily active user [DAU] counts. Obviously, this means the reported ARPU numbers for Facebook and Pinterest are lower than they would be if they used daily active users [DAUs]. Snapchat does in fact use DAUs while we use monetizable DAUs when calculating the ARPU for Twitter. As such, the ARPU above for Snapchat and Twitter is inflated relative to the ARPU for Facebook and Pinterest due to user definitions.

Geography Impacts ARPU

Looking at Facebook’s ARPU

This article was written by

Eric Sprague profile picture
I'm an individual investor heavily influenced by Warren Buffett and Charlie Munger. Munger's 1994 USC Business School Speech is something I think about a lot: ### Over the long term, it's hard for a stock to earn a much better return than the business which underlies it earns. If the business earns 6% on capital over 40 years and you hold it for that 40 years, you're not going to make much different than a 6% return—even if you originally buy it at a huge discount. Conversely, if a business earns 18% on capital over 20 or 30 years, even if you pay an expensive looking price, you'll end up with a fine result. ... Another very simple effect I very seldom see discussed either by investment managers or anybody else is the effect of taxes. If you're going to buy something which compounds for 30 years at 15% per annum and you pay one 35% tax at the very end, the way that works out is that after taxes, you keep 13.3% per annum. In contrast, if you bought the same investment, but had to pay taxes every year of 35% out of the 15% that you earned, then your return would be 15% minus 35% of 15%—or only 9.75% per year compounded. So the difference there is over 3.5%. And what 3.5% does to the numbers over long holding periods like 30 years is truly eye-opening. If you sit back for long, long stretches in great companies, you can get a huge edge from nothing but the way that income taxes work. ### Feel free to follow me on twitter: https://twitter.com/ftreric

Analyst’s Disclosure: I am/we are long FB, GOOG, GOOGL, AMZN, AAPL, VOO. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (172)

UP & DOWN profile picture
Look at TMQ !! Biden is and the socialist left are nuts we need copper right ? For the EV cars and Green energy ..The biggest deposit of Copper and other rare earth metals in North America is in the hands of TMQ so we don't have to buy copper from other countries. Biden kills the access road that the Trump admin approved !!! The left is nuts !!! You all like gas now at $4 plus a gallon ask yourself why ? Biden killed all new fracking and the Keystone pipeline. Biden is a puppet of the socialist left.. Wake up !! ...BTW I own no TMQ... Just saying ..
Facebook has a new player along With twitter. So me me I do not support communism or corpo-communism so when the offering comes here is where I will invest in social media.

Pro-Trump loyalist and businessman Mike Lindell was recently banned from Twitter but clearly, he doesn’t mind. Now, Lindell, popularly known as the “MyPillow Guy” is reportedly planning to launch his own social media platform “where people will be able to talk and not walk on eggshells.”
Lindell first indicated the launch of the social media site on Turning Point USA president Charlie Kirk’s podcast. However, for those thinking this plan is simply retaliation for Lindell’s Twitter ban think again. The MyPillow CEO says he’s been working on this project for over four years now.
“Every single influencer person on the planet can come there. You’re going to have a platform to speak out,” Lindell said, adding, “It’s not just like a little Twitter platform.”
He said his social-media platform would offer an alternative to these sites. “We’re launching this big platform so all the voices of our country can come back and start telling it like it is again,” he said.
“You will not need YouTube. You won’t need these places,” he added. “So it will be where everything can be told, because we’ve got to get our voices back.
He said that the platform would launch in “four or five weeks,” but also that it could launch in “10 days.” He added that he couldn’t say the name of it yet.
While Lindell is keeping the name of the anticipated social media site under wraps I personally think “MyPillow Talk” has a nice ring to it.
What do you think? Are you prepared to leave other social networks in the dust for this Trump rockstar’s new site? Tell us in the comments below!

Its either support a free republic or lose it all.
Soon FascistBook will fade away due to their Marxist censorship and become a forgotten name of the past just like My Space, YikYak, Friendster and others.
cbackous profile picture
@Cchglies lol. So edgy with your "fascistbook" comment. I bet you are fun at parties.
Holger Investor profile picture
@Cchglies If they evaluate the books of the past according to current left ideology they will ban nearly all books written before 1980 incl. Hemmingway, Mark Twain...the bib...
Holger Investor profile picture
@cbackous Nope they are serious with it.
People may have moved away from the FB portal but switched to Instagram and WhatsApp, both part of FB. If FB starts monetizing these it will be huge. Even with the switch to Signal by a few WhatsApp is running strong.
Eric Sprague profile picture
@MiniAlpha Agreed, IG and WhatsApp are huge considerations!
azbroker profile picture
"...bringing my economic FCF total down to $25.6 billion... I think it's reasonable to value the company at 30x this amount..."

This statement jumped out at me mostly because to justify it requires some future growth numbers that don't seem apparent in the article. Otherwise well done.
Eric Sprague profile picture
Thanks, @azbroker. Looking at revenue from the last 10 years, there is no way it can grow at those same rates over the next 10 years but I am optimistic that they can do quite well.
@azbroker FB still has components that are not fully monetized.
Eric Sprague profile picture
@Lorenzo callas. Agreed. They're only getting started with Messenger and WhatsApp.
Without a doubt FB is in a downward spiral as far as users numbers go with their policies on censorship. Same goes for TWTR.
@sfierro53 Silly. They are responding to the fascists on the left. Hopefully it will blow over allowing FB to resume its upward trajectory.
Holger Investor profile picture
The poeple are waiting for an alternative to FB. I do not know how many FB profiles are still active but would not be astonished if it is less than some poeple think.

The main question about the economics of FB is how realistic is the data from FB about their users. As selective reporting became very popular in western countries. I would not be astonished if their might be some findings sooner or later.

The personal observation is that young poeple use FB rarly. I use it since they started political censorship in Europe about 2015 as rare as possible for birthday congratulations, and contact to former friends in Middle East only. FB has beside of rude censoring methods as deleting articles and profiles plenty of sneaky methods as making a story visible for a few visitors only. Most poeple are not political but it is as well the functionality. Many poeple are looking for alternatives.
Robert NYC profile picture
@Holger Investor totally agree. Facebook has broken its brand by going political.
Gary J is Rich on AMZN profile picture
@Robert NYC

How many other brands with 2.8 billion monthly active users? I'll wait for that answer.
Holger Investor profile picture
@Gary J is Rich on AMZN The question is how active this 2.8bn users are. If I use it 3x in in a month for giving a birthday congratulation and a messenger contact I`m one of these 2.8 bn users but spend not more than 20 min. on this green communist platform.
Let's take a poll here - has anybody bought anything based on seeing an ad on Facebook? Me never.
Robert NYC profile picture
@bdhaliwa I now specifically avoid any products on Facebook. They got me with a few funny t-shirts last year before they started playing politics.
Eric Sprague profile picture
@bdhaliwa One of the reasons I bought my gym membership was because of a FB ad.
Robert NYC profile picture
@Eric Sprague Well, that business is probably hurting. Will they increase their dollars spent on an FB marketing program going into the summer?
AEGISBMD profile picture
I never buy anything from a FB ad.
Eric Sprague profile picture
@AEGISBMD One of the reasons I joined my gym is because of a FB ad.
AEGISBMD profile picture
@Eric Sprague

"Over two-thirds of all gym memberships go unused. That's part of the business model big health clubs like Planet Fitness (NYSE:PLNT) rely on. With over 8.7 million members, Planet Fitness averages over 7,000 members per location. But there's almost no way 7,000 people will show up to a Planet Fitness on any day no matter how much pizza they have available for members." - Motley Fool
Eric Sprague profile picture
@AEGISBMD True, it gets crowded in January but many of those folks keep the costs down for the rest of us by paying for the entire year but only using the gym for a month or so.
Now that they have become a mature business I have started accumulating Facebook on drops. I am a user since January 2010. I signed up and continue so I keep in touch with relatives and friends far away and closer by. For debating issues, for political connections, for trivial and not so trivial chat. Facebook was founded to keep people IN TOUCH. And as long as it does that well the rest, like revenue and advertising, follows. i used their targeted ads in the past and they were a decent deal for the money. I have been able to send graduation presents to new graduates via Facebook. I get hit with targeted ads that I occasionally find useful. And as a professional, albeit moderate to conservative investor, I now am comfortable with investing in FB and create a stream of income with covered calls, in lieu of dividends. The author is RIGHT.
I understand this and have a similar approach. While I've had a FB account for way too many years, I do not actively use their product but no plenty that do non-stop.

They are a FCF generating machine and I'll continue to buy the dips as long as I believe the value is fair.
Eric Sprague profile picture
@tondino I use it for sharing photos and for keeping up with my friends in running groups.
UP & DOWN profile picture
Fakebook is a joke ! They censoring free speech and deplatforming people ..I would not invest a nickel in it. It is full of useless ads and the algorithms are crazy stupid.
@up & DOWN you invest to make money, not appreciate their adds.
Great article, i.e., you did a better job of explaining how they monetize their FB sites versus anyone else I have read. So, so happy I bought in at cost basis of $247 and change (1350 shrs) about a month or so ago. Again, thank you for this info.
Eric Sprague profile picture
Thanks, @blade3colorado! I'm glad you found the article to be useful. :)
This is the top of ARPU for FB its all downhill from here. Apple and Google are putting user privacy first and this is the death blow to FB. Apple removing device level Ad ID without explicit user opt-in and ITP2.3 in addition to Google killing off 3rd party cookies means FB will lose its edge. FB won't die anytime soon but its growth has come to an end.
Main_Street profile picture
@Mark Nelson5263 "Apple removing device level Ad ID without explicit user opt-in". This is a big one. A lot of marketing analytics and targeting is riding on the ability to identify the device (and therefore the user).
A friend who runs a significant ad budget started to cut back on digital advertising last year and it has worked really well for her company.
Eric Sprague profile picture
@Mark Nelson5263 We'll see. They said GDPR would be the end of things in the Europe segment and it turned out ok.
terryongarland profile picture
Facebook..is just creepy. Sorry ,they are running a brilliant business model..but the power they have accumulated along with some very concerning positions, has me wary and uncomfortable. Yet , I will not harm my portfolio with that bias..yet.
As long as facebook censures free speech they deserve to be shorted, broken up and dismantled.
The american dream cannot be stopped because of a couple of ungratefully success stories using our great country and its constitution to get them where they made it.
They want to improve?? Immediately remove the Soros backed unfact fact checkers, remove all censure-ship of conservatives and reinstate their accounts With all their post clearly labeled facebook made a mistake and apologize for such terrible actions against our customers/ users.
Otherwise investing in a communist platform will get you broke on a box car.
By definition: earnings and profit growth — supersedes every other metric in driving stock price growth.🤔☝️
*** It’s just a matter of time before FB’s stock price overcomes all the noise — to bounce solidly of its current basing pattern to new record highs!👌📈🖖
@Fishkatcher You go ahead and invest in Parler or nuthouses. There is a difference between Freedom of Speech and what Facebook is censoring and they should censor lies that instigate activities intended to RESTRICT other peoples FREEDOMS based on unchecked garbage. If you like white power, and freedoms for everyone on your terms, go to Russia. If you like freedoms for everyone based on your faith go to Saudi Arabia or Iran. Those countries do Fascism by design, right. But not here in the USA, or in this stock market.
I might have made money on Fakebook stock but you will never catch me using that crap. If the only way for me to be informed is thru Fakebook, I choose to be left out.
Main_Street profile picture
I have to agree that FB is the best ad platform out there. I have spent a few millions in digital ads and FB was the best for relevant targeting.
However, Google's announcement today that they will stop using individual browsing history to sell ads (even on their ad exchanges) is changing the digital marketing game. Third party cookies are already in the process of being extinguished. Apple and now Google are trying to stay one step ahead of legislation around the world that improves privacy. Facebook will have to adapt too. I am not sure how dynamic ads will work if there is no tracking of the individuals' browsing history across the web.
One word about the user growth. Facebook counts a lot of folks as users who may not be actual users. People who use Facebook to login on different sites are counted even if they are inactive on the Facebook pages. People who do marketing analytics are forced to open Facebook accounts so they can use Facebook analytics. Etc.
Robert NYC profile picture
@Main_Street I am more focused on FBs revenue stream, as in singular. Google, Apple, Microsoft all have dozens of revenue streams thus their ability to adapt without losing revenues. FB is the weak sister and both Apple and Microsoft are targeting her.

With just one monetizable stream at 95% of revenues, the massive loss of small businesses as a result of the lockdowns, Apple, paying nations for news content and so on, means their next few quarters and EPS are in jeopardy.

I have been layering on PUTs in FB and the QQQs for over a month seeing the rotation coming. Stephanie (Link I believe) on CNBC all day long exited her FB position completely rolling into, of all tech companies, IBM as a better tech option.

FB put out that $25 billion buyback to cover the earnings they are going to lose from the Apple move. They know it is coming. A guy In The Know about mobile advertising estimated to me that Apple move is going to cost FB multiple billions a year. How much are the multiple nations FB has to pay them is unknown. That fight in Australia.... Australia won. Canada is next. And so on.

The FB 200 EMA is at $255. The 50 EMA, a faster average is rolling down. In a few weeks you will see articles out here about FB and a black cross. That seems to get some of the stubborn lovers of Facebook finally seeing the light of rotation nd selling. But, at a lower price than today. Charts work.
Eric Sprague profile picture
@Main_Street Right, if they are inflating users then ARPU is even higher! And for years they've been saying there are better options than cookies for mobile.
Ban ads that move, flash, show videos, move relative to content by following me down the page.
Moving ads are a distraction.
One of the future tailwinds for FB ad revenue is the monetizing of WhatsApp’s huge user base.
Robert NYC profile picture
@midas_someday Yeah, that is going to matter in a year or two. Is this dropping stock going to promise a green car too, monetized in 2027?
Eric Sprague profile picture
@midas_someday WhatsApp does have a huge user base. I wonder if there can be some monetization there with payments as well.
@Robert NYC
Your dismissal that it won’t matter to the stock in a year or two seems to assume that WhatsApp monetization materializes in their earnings report in that time frame. That is not necessary for the stock to react positively, all it will take is an announcement from FB.

Your negative bias is expected since you have already disclosed that you are short on FB.
Different stroke for different folks. FB will outlast them all. No one is taking away Grandma's second home and PINS is a good stock but not a replacement for FB or their other sites. Twitter is a joke with most of their users not even in this country but great for them spying on us and most pushing garbage on the site and all the nonsensical talk of getting all these new and old users to pay? GLTA
Eric Sprague profile picture
@Up and Away These are good points - Twitter reminds me of Wikipedia. Both have been widely useful over the years but difficult to monetize. Anecdotally, the ads I've seen at Twitter have gotten somewhat better over the years but they have a long way to go before they'll be as relevant and effective as the ads I see on FB.
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