Facebook reports first quarter results after the bell on Wednesday, and the social-media giant has shown it’s only competing against its own past performance.
During last quarter’s conference call, CFO David Wehner warned that ad revenue growth will “come down meaningfully” in 2017. Investors are waiting to see just how much.
SLOWING AD REVENUE GROWTH
No doubt Wehner is tempering analysts’ expectations by emphasizing that it can’t keep up the 50%+ revenue growth over the past five quarters. Last quarter, total revenue grew by 51% year-over-year to $8.8 billion and ad revenue was up 53% to $8.6 billion. Why the expected slowdown? The news feed is at capacity and can’t handle any more ads.
This shouldn’t come as too much of a surprise, considering Alphabet and Facebook (FB) gobbled up 20% of the world’s advertising budget across all media last year. As of April, Facebook had 5 million monthly advertisers on its platform. Total revenue grew by 51% year-over-year to $8.8 billion; ad revenue was up 53% to $8.6 billion.
Meanwhile, Facebook’s photo-based network, Instagram, has 1 million monthly advertisers, up from 200,000 a year ago. There’s a prime window of opportunity for ads to further infiltrate the app and its 700 million monthly active users.
Of course, that’s a glimmering bright spot for investors. Deutsche Bank raised its price target on the stock to $180 on Tuesday morning, wholly on the opportunities for advertisers on Instagram.
And Wehner agrees. During last quarter’s conference call, he noted that “the ad load opportunities are higher on Instagram because Instagram is at a lower ad load than Facebook so there is an opportunity for us to continue to grow ad load on Instagram probably beyond — in a longer time frame than there is on Facebook because of that disparity in terms of where they are today.”
BEYOND CORE FACEBOOK
CEO Mark Zuckerberg has yet to articulate his vision for monetizing its Messenger app and Whatsapp, a messaging app it acquired in 2014. Regardless, Facebook will surely focus on tapping into the 2.4 billion people using those apps.
Though shares barely budged ahead of Facebook’s report, the company has had an excellent year, with shares up 33% year-to-date, outpacing its fellow large-cap tech companies, including Amazon (AMZN) and Alphabet (GOOG, GOOGL).
Of course, Zuckerberg has called video a “mega trend” and investors can expect that the company will continue to roll out its 15-second mid-roll ads, though publishers are mixed on whether they will be an effective strategy.
THE FUTURE OF FB LIVE
One controversial aspect of Facebook’s push into video has been its Live feature, which has been exploited to capture some horrific acts and broadcast them to the world. Individuals have streamed at least 50 acts of violence since the company launched the service a little over a year ago, according to the Wall Street Journal.
What started as a platform for Chewbacca mom and Buzzfeed’s exploding watermelon has quickly become an outlet for violence. Zuckerberg rolled out a feature that wasn’t ready for its debut and now it’s seeing the consequences, according to several former employees.
While Zuckerberg and his team have repeatedly discussed the need for community engagement and involvement, Facebook clearly can’t solely on its users to flag violent content quickly enough.
In response to the queries about Facebook’s role in monitoring this content, Zuckerberg, during last quarter’s conference call, promised to “build AI systems that can watch a video and understand that it’s going to be problematic and violates the policies of our community and that people aren’t going to want to see it and then just not show it to people.”
Investors will await to see whether this kind of technology is unveiled or at least addressed in more depth during Wednesday’s conference call.
Analysts are expecting revenue of $7.83 billion, up from $5.83 billion the company reported first quarter of last year. Stay tuned to Yahoo Finance for live coverage on the results.
Melody Hahm is a writer at Yahoo Finance, covering entrepreneurship, technology and real estate. Follow her on Twitter @melodyhahm.
Read more: