Thursday, November 3, 2016

Growth Concerns Emerge As Facebook Profit Soars


Mark Zuckerg- Founder & CEO Of Facebook Inc.

Facebook Inc., now on pace to reach $27 billion in revenue this year, is defying the slowdown in growth that usually comes with increasing size.

The social media giant said Wednesday that third-quarter revenue soared 56% to $7 billion and its quarterly profit nearly tripled to $2.38 billion, as it reaps the spoils of its dominance in mobile advertising.
Facebook’s top-line growth rate is double any other U.S. company with revenue of $20 billion or more, excluding those growing through acquisitions, according to data from Standard & Poor’s Capital IQ.

Yet Facebook said that it can’t maintain its current pace. Starting in the middle of next year, Facebook will stop showing users more ads in their news feed, the tactic it has been using to juice revenue growth for the past two years, the company said Wednesday. As a result, advertising growth will “come down meaningfully,” Chief Financial Officer Dave Wehner said during a call with analysts.

Facebook now expects a “much smaller contribution from this important factor going forward,” he said. He added that Facebook expects to power growth by adding more users and boosting the amount of time they spend on the social network. Video is key to that strategy.

Yet Facebook said that it can’t maintain its current pace. Starting in the middle of next year, Facebook will stop showing users more ads in their news feed, the tactic it has been using to juice revenue growth for the past two years, the company said Wednesday. As a result, advertising growth will “come down meaningfully,” Chief Financial Officer Dave Wehner said during a call with analysts.

Facebook now expects a “much smaller contribution from this important factor going forward,” he said. He added that Facebook expects to power growth by adding more users and boosting the amount of time they spend on the social network. Video is key to that strategy.

“The growth rate has to be slower; it’s a law of large numbers, if nothing else,” Pivotal Research analyst Brian Wieser said. “Nobody was expecting the company to grow at the same rate.”
Facebook’s stock price was down more than 7% in after-hours trading because of the caution about advertising growth. Facebook also plans to spend more on data centers and hiring engineers next year.
Facebook’s growth outstrips its only rival in online advertising, Google parent Alphabet Inc., which last week said quarterly revenue grew 20%.
 
Facebook and Google together garnered 68% of spending on U.S. online advertising in the second quarter—accounting for all the growth, Mr. Wieser said. When excluding those two companies, revenue generated by other players in the U.S. digital ad market shrank 5%, according to his estimates.
“What should be a concern for everyone is the dominance of just two companies, Google and Facebook, who are capturing all of the growth in the ad marketplace,” said Jason Kint, chief executive at Digital Content Next, a trade organization that represents digital publishers such as Condé Nast, Business Insider, the Washington Post and Wall Street Journal owner News Corp. “No one is able to collect data on the scale they can.”

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