Congrats on One Billion Facebook Users… Who Buy Nothing

Facebook (Nasdaq: FB) is on the cusp of amassing one billion users, unarguably a milestone.

The last official tally of Facebook users was 955 million. Employees have become giddy in expectation of reaching the one billion mark any day now.

But, they might want to hold off tossing confetti, because the momentous occasion will also shine a bright light on the social network’s shortcoming.

No matter how many users Facebook acquires, if it can’t sell anything, the landmark number is useless.

As Owen Thomas of Business Insider wrote, “Bottom line: One billion users isn’t cool. You know what’s cool? Two billion.”

Facebook Sales Estimates Slashed

The failure to monetize that many subscribers is a shame because Facebook’s massive user base is an advertiser’s dream if effective – but there have been no signs of future revenue growth.

That’s why market research firm EMarketer Inc. recently slashed its projections for the Menlo Park, CA-based company from $6.1 billion in annual sales to $5.04 billion. Facebook continues to struggle for advertising growth, in particular the fast growing mobile market.

An increasing number of Facebook users are now accessing their accounts via smartphones and other mobile devices, an area where Facebook collects a great deal less in ad revenue than it does on desktop access.

Facebook enjoyed an 88% revenue increase in 2011. EMarketer estimates Facebook revenue will rise only 36% this year and 31% in 2013.

Advertising growth, which comprises the bulk of Facebook’s sales, was more than 68% in 2011, according to EMarketer. That number will dwindle to 34% in 2012 and 29% in 2013.

In July, in its first earnings report as a public company, Facebook reported sales growth of 32% for the second quarter, down from 45% in the prior quarter and 55% in the fourth quarter of 2011.

The company’s earnings report was lackluster, uninspiring, and very short on guidance.

Can Facebook Ads Even Work?

Now an increasing number of marketers have questioned just how effective Facebook advertisements are, according to EMarketer analyst Debra Williamson.

Sales “haven’t been growing as fast as we and others had expected. There is still hesitation about the effectiveness of the advertising, about how much the advertising is worth,” Williamson told Bloomberg News.

Facebook maintains that it’s working with companies to show that ads do have an impression and are impactful, but Williamson cautions it needs to move faster in this arena.

In the days leading up to Facebook’s hugely hyped, highly anticipated IPO, behemoth General Motors Co. (NYSE: GM) announced it would stop advertising on the social media site. GM claimed its Facebook ads failed to have a big impact on consumers.

GM was spending some $40 million a year on Facebook marketing, $10 million of which was for paid advertising, according to data from The Wall Street Journal. The company’s defection did more than strip money from Facebook’s ad revenue. It promoted a plethora of other companies to review their Facebook ad strategy.

Now Facebook hopes a fresh strategy will appease advertisers. Facebook next week will debut a new tool for marketers, company spokesperson Elisabeth Diana confirmed to Bloomberg. Advertisers will be able to use information they have gathered from their own customer base, including e-mail addresses and phone numbers, to target those same customers on Facebook, using a software program that protects identities.

Facebook Stock Dips Under $20

Facebook’s shares have lost more than half their value from the May 18 IPO.

The company, currently worth about $50 billion, has seen more than $40 billion slashed off its value since its entrance as a public company. Facebook is now the worst performer on record among all large IPOs, Bloomberg reported.

“Investors who bought into the IPO have lost billions of dollars,” Victor Anthony of Topeka Capital Markets explained to Bloomberg. He added that CEO Mark Zuckerberg and his team need to detail how the company plans to drive revenue growth if they want investors to hang around.

Zuckerberg’s indifference to Wall Street’s opinions and the day-to-day movement of Facebook shares are also troublesome for many investors. They may not hang on to shares for much longer if they don’t see much to like. They want to see revenue growth, sales, a concerned CEO and continued membership development.

Facebook stock traded around $18.27 in Friday morning trading, down nearly 16% for the month of August.

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