In May, Facebook’s stock fell after the social networking giant’s quarterly results failed to reassure investors fears about slowing ad sales growth.
On Wednesday, Wall Street mostly liked what it heard from Facebook, which beat analyst forecasts by posting a 45% gain in second-quarter revenue to $9.3 billion. Mobile ad revenue accounted for 87% of Facebook’s nearly $9.2 billion in ad revenue—with mobile video ads making an especially strong showing.
Facebook shares rose almost 4% in after-hours trading on Wednesday, on top of what was already a near all-time high closing price during regular trading. The company’s stock has added nearly 44% since the start of the year.
Earlier this year, Facebook said it expected its ad growth rate to “come down meaningfully” this year because it is running out of new places to put ads in its News Feed. That warning spooked some investors at the time, although the company has been testing new kinds of ads in recent months, including experimenting with pre-roll and mid-roll video ads (which run either before or during a mobile ad on the service). Facebook has also placed more ads in Instagram’s Stories—collections of video and pictures—while testing ads in its Craigslist-like Marketplace platform and in its popular Messenger messaging app.
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In short, Facebook has been busy rolling out more ways for businesses to reach Facebook’s more than 2 billion users outside of the News Feed. So far, so good, as the much-feared ad growth decline hasn’t happened yet. However, during a call with analysts on Wednesday, Facebook CFO David Wehner threw some cold water on the usual optimism by noting that the company still expects its ad revenue growth rate to eventually slow during the second half of 2017. Part of the reasoning, the company said, is that Facebook’s ongoing plan to make money from Messenger, which has more than 1.2 billion global monthly users, has so far failed to make inroads quickly enough to offset slowing ad revenue growth elsewhere on the service.
On the earnings call, Facebook COO Sheryl Sandberg was adamant that the company should stay the course with its slow rollout of additional ads on Messenger so as to not overload users too quickly. “We’re going to be slow and deliberate,” Sandberg said. Later this month, Messenger users will start seeing ads from businesses on the home tab of the service’s mobile app, while businesses are already able to communicate with users who click on their ads through the app.
CEO Mark Zuckerberg tried to hammer home the idea that video is still a more important part of Facebook’s ad strategy than Messenger over the next two to three years. In addition to experimenting with more ads in short-form Facebook videos, the company is also forging ahead with the development of more TV-style, original programming—similar to other digital rivals, like Twitter, Snapchat, and Google’s YouTube. On Wednesday, Bloomberg reported that Facebook’s first wave of original shows may be ready in less than a month.
