Facebook quarterly sales surge, but shares fall
Facebook reported blowout quarterly profits once again on Wednesday, boosted by the social network’s mobile ad sales, but shares fell after it warned revenues would soon start to slow.
The dip reflected investor fears that the social media giant won’t be able to maintain its rapid pace despite the strong mobile ad sales and a stable increase in users in the third quarter ended September.
The Menlo Park, California-based company also said it logged nearly 1.8 billion monthly users, a 16 percent rise from last year. Many of them were on mobile, which made up 84 percent of the company’s ad revenue this quarter, up from 78 percent a year earlier.
“We had another good quarter,” said chief executive Mark Zuckerberg on a conference call with analysts. “Our community continues to grow around the world.”
Yet Facebook’s stocked dropped more than 7 percent in after-hours trading on Wednesday after the company said it will decrease the number of ads in news feeds. As a result, advertising growth will “come down meaningfully,” Chief Financial Officer Dave Wehner said. On Thursday, the shares closed down 5.64 percent to close at $120.00.
Executives also estimated expenses will increase in 2017 as they expand data centers, hire more engineers and invest heavily in video.
Zuckerberg heralded video as the ticket to maintaining its winning streak as people watch more of them and video ads become more profitable.
“Soon, we believe a camera will be the main way to share,” he said. “We think it’s pretty clear video is only going to become more important.”
Facebook is already building out visual messaging products, having launched the Snapchat-like Instagram Stories in August and continuing to support Facebook Live, which Zuckerberg said differs from other types of video because allows people to interact with one another.
As ad space in its feeds grow scarcer, video opens up an opportunity for Facebook to grab television ad dollars. Rahul Shah, chief executive of Ideal Asset Management, expects the social network to be competitive.
“As video is consumed more, they’ll be able to deliver more video ads,” he said. “They can charge more for the ads and compete better because they can target a specific ad to a specific group with better granularity.”
Facebook said net income in the third quarter more than doubled to $2.38 billion, or 82 cents a share, from $8.96 million, or 31 cents a year earlier. Adjusted earnings were $1.09 per share, up from 57 cents per share last year. Meanwhile, revenue rose 56 percent to $7.01 billion, beating analyst expectations of $6.92 billion.