In its latest quarterly SEC filing, Facebook admits that it faces the risk of losing relevance among its users if it cannot improve engagement amid a growth slowdown.

Facebook iOS 7 Growth slowdown amid the rise of mobile devices still haunts Facebook

Facebook’s growth is slowing down. This is the likely scenario if one’s user base is almost at a saturation point. After all, Facebook currently has more than a billion users around the world, and the social network has to keep the service interesting in order to continue engaging its users.

In Facebook’s latest quarterly filing with the Securities and Exchange Commission, it outlines a few risk factors that might impact its business. This disclosure is part of its fiduciary duty to shareholders, who expect their stock value to grow or at least retain value. Most of these items involve standard wording of potential risks, such as changes in the market and technical problems. Every business has its own set of inherent risk factors, and some remain the same quarter-after-quarter year-over-year. However, when some risk factors remain it means that the company in question has yet to effectively solve or mitigate them.

It is interesting to note, however, that the social network is averse to the growth of mobile devices as the primary means of accessing its service. Here are some key points that can be found under its “Risk Factors” section:

Growth decline. Facebook admits that the growth of its user base is likely to decline once it reaches a certain point. However, what is more important is for the existing user base to remain engaged. A big risk is the erosion of its active user base, who may switch to other social networking services or grow bored of social networking.

The rise of mobile. Facebook considers the growth of its mobile user base as potentially risky, because mobile users are more difficult to monetize than desktop-based users. “While our mobile advertising revenue continues to grow, we monetize mobile users at a lower rate compared to users who access Facebook through personal computers,” the report states. However, the company is aware that advertising is evolving, and mobile usage might be a key driver of revenues in the future.

An added factor with respect to mobile is integration. Facebook risks losing relevance if mobile platforms start preferring other social networks as their primary platforms in the future. Case in point: Google is now incorporating Google Search as its launcher starting with Android KitKat. Facebook attempted to take over Android’s home screen before, with Facebook Home, although this effort has not gained traction so far. If devices started shipping with other social networks as the default, then Facebook risks losing some market share.

Privacy. Another interesting point to note in Facebook’s SEC filing is that it considers U.S. and foreign laws and regulations concerning privacy as a potential risk. Such “data protection” laws may require Facebook to incur additional costs for collecting personal information from users, such as preferences, online activities, and online discussions.

A high-profile example would be a class-action lawsuit that Facebook recently settled. The social networking company paid $20 million to privacy organizations and some 600,000 users for using their information to target Sponsored Stories. After this settlement, Facebook had to make some changes with its privacy settings, which was estimated to cost the company $145 million in potential revenues lost.

The SEC filing has likewise detailed other risks that the company faces, including economic, regulatory, technical and legal ones, among others.

It’s interesting to note how a change in platforms and preferences can affect a company, and even an entire industry. The rise of mobile devices, for instance, signals a more pervasive and personal experience for users. However, it seems Facebook is still struggling to optimize the social networking experience for mobile, at least from the perspective of a platform owner wanting to monetize its assets.

But will these factors significantly affect Facebook’s value? In the short term, these risks have manifested themselves and influenced the company’s stock price. But as to whether these are a longer-term risk, only time will tell.

Source: SEC Filing