Facebook just delivered a truly bang-up earnings report, crushing Wall Street’s expectations on both the top and bottom line, as well as on user growth. The company saw a colossal 59% increase in revenue, increasing from 57% growth the quarter before.
CEO Mark Zuckerberg said that engagement and sharing are both increasing, and even teens remain just as hooked on Facebook and Instagram as ever.
However, it wasn’t all sunshine and rainbows.
Facebook CFO Mark Wehner warned investors that they shouldn’t expect to see such strong revenue growth through the rest of the year or next year, because of an impending slow-down in “ad load” increase.
In other words, Facebook has crammed your Newsfeed with all the ads it thinks it can fit.
“Ad load is definitely up from where we were a few years ago. It’s been an important driver of inventory growth,” Wehner said, without specifying the exact ratio of ads that Facebook currently injects into its users’ newsfeeds.
The right mix
Analysts on the conference call repeatedly tried to get more details about the change, wondering how Facebook decides how many ads it can show and whether it could perhaps add more ads on Instagram, where the current load is less, or perhaps in emerging markets, where Facebook still makes much less money per user than in the United States and Europe.
Wehner described the process of deciding Newsfeed ad load as a “mix of art and science,” and noted that Facebook needs to be “thoughtful” about the mix of content and ads that it puts in the newsfeed, otherwise it risks turning users off.
“We think we’re in a good zone on the right ad load and we do think there’s opportunity to grow that modestly,” he said. “But as we look forward into 2017 we think it will be a less significant factor driving inventory growth.”
One thing that Facebook won’t do is reduce the number of ads that it shows in order to boost the price per ad, Wehner explained. “I don’t think we would think about necessarily dropping ad load to drive pricing.”
Still, despite all the questions on the call, the warning about ad loads didn’t spook investors too much. The stock is down from its high of 8% after-hours, but it’s still up around 5%.
This quarter, the company saw a 49% increase in ad impressions and a 9% increase in the average price it charges per ad.
Here’s a look at Facebook’s historic revenue growth:
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