Facebook Warns of Slow Growth in 3Q this Year

Facebook, the world's largest online social media network warned that revenue growth would slow this quarter, offsetting strong earnings that handily beat Wall Street estimates.

The slip reflected doubts among investors that the company can continue its runaway success, even as it reported strong mobile ad numbers and steady growth in its enormous network, which ticked up to nearly 1.8 billion monthly users in the latest quarter.

Facebook reported a greater-than-expected 56 percent rise in quarterly revenue, to $7.01 billion, showing the company is claiming an ever-growing share of the online advertising pie.

Google's parent Alphabet Inc) last week also announced strong revenue and profit growth, while traditional media companies like the New York Times Co (NYT.N) are struggling to stem ad revenue declines.

However, in a call with analysts, Facebook Chief Financial Officer David Wehner said ad growth would likely slow "meaningfully" due to limits on "ad load," or the number of ads that Facebook can put in front of customers without alienating them.

He also said 2017 would be a year of aggressive investment with a substantial increase in expenses.

"They have reached the limit of the ad frequency on news feed, so they are going to have to find revenue growth from other areas like pricing, user engagement, user base growth," said Josh Olson, an analyst at Edward Jones.

However, he said investment in the business should benefit Facebook in the longer term.

"We have been down this road before with Facebook, they have invested something like this in mobile and we have seen it pay off. So we are looking at it as an opportunity," said Olson.

Facebook shares were down 7 percent in after-hours trading, at $118.21.

3D-printed models of people are seen in front of a Facebook logo in this photo illustration taken June 9, 2016. REUTERS/Dado Ruvic/Illustration

3D-printed models of people are seen in front of a Facebook logo in this photo illustration taken June 9, 2016. REUTERS/Dado Ruvic/Illustration

Even as ad loads topped out, Wehner said Facebook had opportunities to grow revenue by boosting time spent on the site, further growing its user base and tapping still-rising advertiser demand.

While the warning about the fourth quarter sent some investors running, by most metrics the company beat analysts' expectations on torrid mobile ad growth.

Mobile ads accounted for 84 percent of Facebook's total advertising revenue of $6.82 billion in the third quarter that ended Sept. 30, compared with 78 percent a year earlier. The company said it surpassed one billion mobile-only monthly users last quarter.

The company is also reaping the benefits of a big push into video, both on Facebook itself and on the Instagram photo app. Founder and Chief Executive Mark Zuckerberg told analysts that the company was pursuing a video-first strategy across its entire family of apps, touting rapid expansion in Facebook's live video feature.

The company's quarterly earnings announced on Wednesday marked the sixth straight time it posted revenue numbers that beat expectations.

Facebook reported quarterly revenue of $7.01 billion, beating analysts' average estimate of $6.92 billion, according to Thomson Reuters I/B/E/S.

Excluding items, the company earned $1.09 per share. On that basis, analysts had expected 97 cents per share.

Facebook said about 1.79 billion people were using the service monthly as of Sept. 30, up 16 percent, or 243 million, from a year earlier. By comparison, the 10-year-old Twitter Inc (TWTR.N) last week reported it had 317 million monthly users in total.