Facebook Projects Greater Costs Slowdown in Ad Sales Growth



Nordnet Baritof
Nordnet Baritof
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2016-11-03 11:30:19

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Facebook Projects Greater Costs Slowdown in Ad Sales Growth

Facebook Inc. reported a quarter that blew past expectations. But its shares fell in extended trading after executives suggested they won’t be able to repeat the performance.

The company’s shares declined as much as 8.5 percent Wednesday after two sobering comments on its conference call. First, Chief Financial Officer David Wehner said revenue growth rates will come down “meaningfully” next year, because the company won’t keep increasing the percentage of ads that Facebook users see in their news feed. Second, capital expenditures will rise “substantially” in 2017 as the social network works to build data centers and recruit the best engineers, he said.

“As we slow ad load growth, we’re going to have a slowing of revenue as well,” Wehner said. “it’s been one of the key factors in terms of driving growth.”

Earlier, the Menlo Park, California-based company reported third-quarter sales grew 56 percent to $7.01 billion, topping analysts’ average estimate of $6.92 billion. It was the fourth straight quarter of more than 50 percent revenue growth. Facebook generated 84 percent of its advertising sales from mobile phones, unchanged from the prior quarter.

Advertising provides more than 97 percent of the social network’s revenue. As the company spends money on new areas like virtual reality and mobile messaging that may not generate revenue for years, its performance is tied to its main advertising business, particularly on mobile phones. Facebook and Alphabet Inc.’s Google, have driven the growth in digital advertising spending, together capturing 68 percent of that revenue in the first half of this year, according to the Interactive Advertising Bureau, a nonprofit industry group.

Facebook will begin limiting its ad load -- the number of ads it allows per the number of news feed stories -- to keep from turning away users, who come to the site to see updates from their friends and family, not ads, Wehner said on the call. The comments help push shares to a low of $116.31 in extended trading after closing at $127.17 in New York. Facebook’s stock has gained 22 percent this year.

Source " bloomberg.com "

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