Facebook Inc., now on pace to reach $27 billion in revenue this year, is defying the slowdown in development that generally comes with growing size.
The social media giant mentioned Wednesday that third-quarter income soared 56% to $7 billion and its quarterly profit almost tripled to $2.38 billion, since it reaps the spoils of its dominance in mobile advertising.
Facebook?ˉs top-line development rate is double any other U.S. enterprise with income of $20 billion or far more, excluding these increasing by way of acquisitions, as outlined by information from Normal & Poor?ˉs Capital IQ.
Yet Facebook said that it can?ˉt maintain its current pace. Starting in the middle of next year, Facebook will stop showing users much more ads in their news feed, the tactic it has been using to juice income growth for the past two years, the business said Wednesday. As a result, marketing 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 development by adding far more users and boosting the amount of time they spend on the social network. Video is key to that strategy.
“The development rate has to be slower; it’s a law of large numbers, if nothing else,” Pivotal Research analyst Brian Wieser stated. “Nobody was expecting the company to grow at the same price.”
Facebook’s stock cost was down more than 7% in after-hours trading simply because of the caution about marketing development. Facebook also plans to spend extra on information centers and hiring engineers next year.
Facebook’s development outstrips its only rival in online advertising, Google parent Alphabet Inc., which last week mentioned quarterly income grew 20%.
Facebook and Google together garnered 68% of spending on U.S. online marketing in the second quarter-accounting for all the growth, Mr. Wieser mentioned. When excluding those two companies, income generated by other players in the U.S. digital ad market shrank 5%, in accordance with 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 development in the ad marketplace,” said Jason Kint, chief executive at Digital Content Next, a trade organization that represents digital publishers such as Condé Nast, Enterprise Insider, the Washington Post and Wall Street Journal owner News Corp. “No one is able to collect information on the scale they can.”
Mobile accounts for nearly half of all the marketing purchased online in the first half of 2016, in accordance with the Interactive Advertising Bureau, and mobile ads recorded the fastest development of any category compared with the first six months of 2015.
As Facebook turned its focus to its mobile app in 2012, it tapped into a huge market of businesses eager to reach consumers. Mobile advertising made up 84% of Facebook’s marketing revenue in the third quarter, an acceleration from the previous year.
“People are moving to mobile and marketers know that,” Sheryl Sandberg, Facebook’s chief operating officer, stated in an interview. In the past year, Facebook added 270 million new mobile users who log in at least once a month. Of its 1.79 billion monthly users across all platforms, 93% are on mobile.
Facebook makes money by slotting ads into the news feed, the main scroll of pictures, videos and posts. But putting too many ads in the news feed could turn off users. Executives have said they are seeking “the right balance” of ads and other content in the news feed.
Video could provide the next avenue for development. Chief Executive Mark Zuckerberg stated that Facebook would evolve into a “video-first” firm by making video core to each of its apps. Executives predict that within five years, most of what people consume online will be video.
Adding extra video to Facebook’s news feed could boost the amount of time users spend on the site. That, in turn, could give Facebook the opportunity to sell a lot more lucrative video ads and potentially divert dollars from what advertisers currently spend on television ads. TV ads are a roughly $70 billion market in the U.S., in line with eMarketer.
Facebook and Google have made a strong case that their audiences and ad products are competitive with television advertising in their ability to sell products, stated Donald Williams, chief digital officer at the ad buying firm Horizon Media. “They’ve been trying to appeal to brand marketers and they’re getting better at it all the time.”