Facebook Still Commands User Loyalty

Investors may have grown disenchanted with Facebook, but a new survey suggests that users are still highly engaged with the social network. In addition to its huge audience of more than 900 million, the amount of time spent on Facebook has long been one of the key selling points for advertisers.

A May survey conducted by Needham & Co. among 100 Facebook users worldwide found they typically spend 20 minutes to an hour each day on the site. At the low end, that translates into about 10 hours a month -- which would be even higher than the average of seven hours, nine minutes that Nielsen estimates U.S. users spent on Facebook in March.

Sixty percent of those surveyed told Needham they use Facebook more than they did a year ago. The rest use it less (30%) or the same as a year ago. “We think these trends underscore Facebook’s success at making their platform stickier with longer engagement lengths,” wrote Needham analyst Laura Martin.

When asked what they liked about Facebook, people cited three main attributes: communication, ubiquity and entertainment. In particular, they liked being able to keep in touch with friends and family, finding people with similar interests, fill free time, find amusing or newsworthy content, and watch video and play games.

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What do people dislike about Facebook? Potential security risks, users' narcissism, the perception that it makes money selling personal data to private companies, fake accounts,  and having user activity monitored.

When asked whether there were any Internet service they liked better than Facebook, the majority (62%) said “no.” Of the balance, Google and Twitter were mentioned most often, followed by LinkedIn, Last.fm, and Pinterest.

Nine out of 10 people also rated Facebook higher than “5” on a scale of one (hate) to 10 (love), with most giving it a 6 or 7. But about half said their rating had fallen over the past year, indicating the attachment is not as strong as before for many. Almost two-thirds of the sample used by Needham were U.S. users, 25% were from Asia and 12% were from Europe, with an average age of 32. But keep in mind that the sample size of 100 is extremely tiny for a service with nearly 1 billion users.

Martin says “money follows time” online. Since Facebook represents 14% of time spent online globally, that suggests revenue potential of $14 billion globally, including $6 billion in the U.S. (Facebook had 2011 revenue of $3.7 billion.)

The Needham report says Facebook has solved the two most difficult parts of building out its business -- consumer adoption and relevance -- with monetization as the remaining piece of the puzzle. Users favor friends’ recommendations over those of strangers, suggesting further opportunities to monetize the site.

Among the investment risks associated with Facebook cited by the firm: privacy-related issues, a user fatigue factor, the lack of mobile monetization, and the lack of standard measurement for ad campaigns on the site, underscored by General Motors' recent decision to pull $10 million in advertising from Facebook. 

Despite the company's botched IPO and subsequent price drop from $38 to about $32 a share as of Thursday, Martin put a 12-month price target of $40 on Facebook's stock based on its revenue potential. Only a quarter of those surveyed by Needham said they would try to buy Facebook shares after it went public.

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