Facebook is Becoming an Unexpected Way to Gain Emerging Market Exposure

The growth of social media titan Facebook Inc (NASDAQ:FB) in emerging markets — and its declining growth in developed ones — makes it an interesting proxy EM play.

The demographics of Facebook’s users have completely flipped over the past six years.

In 2010, 60% of its users were in the U.S., Canada, and Europe.

Nowadays, 67% of its 1.7 billion global users reside in emerging markets — and that trend is only accelerating. From Bloomberg:

Researcher eMarketer estimates India will surpass the U.S. next year as the country with the most Facebook users. It also ranks India, Indonesia, Mexico and the Philippines as the top four countries to see the fastest Facebook user growth until 2020.

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While the vast majority of the company’s revenue is currently derived in the United States, that too will likely change in coming years. Facebook is, quite simply, running out of ad space on its platform, and some big-name U.S. advertisers have begun to pull back spending.

The process of tepid domestic revenue growth and higher foreign growth has already begun, in fact:

Three quarters of [Facebook’s] revenue still comes from the U.S., Canada and Europe, down from 88 percent six years ago.

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Emerging market focused funds are beginning to take note, and step up their Facebook investments accordingly.

“From a monetization perspective it’s still dominantly the U.S. but from a long-term opportunity perspective it’s definitely emerging-markets,” Charlie Wilson, the Santa Fe, New Mexico-based managing director at Thornburg Investment Management Inc., said in an interview in New York. He has steadily added Facebook shares to the Thornburg Developing World Fund, and they now account for 3 percent of the $1.2 billion portfolio.

While far from a traditional way to gain exposure to developing nations’ economies, the company’s overseas revenue growth — and its larger international revenue mix — are all but guaranteed.

Facebook shares fell $1.48 (-1.13%) to $128.79 in Friday morning trading. FB has gained 23% year-to-date, versus a 7% rise in the S&P 500 during the same period.

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