Facebook Announces Growth in Profit

Facebook Announces Growth in Profit

Facebook is getting bigger and analysts predicted that it would slow down its growth. Usually, a company increasing its size means a slowing down in the pace at which it grows. But Facebook defied expectations and is well on its way to reaching $27 billion in revenue for the year 2016. This Wednesday, Facebook made public its results for the third quarter. Revenue for the company went up 56 percent to $7 billion. The company’s quarterly profit almost tripled reaching 2.38 billion. Facebook has dominated the market for mobile advertising. That’s clearly visible in the results it showed.

Facebook’s Unparalleled Growth

According to data from Standard & Poor’s Capital IQ Facebook’s growth rate is double the rate of any other company this size. Other US companies with as much revenue as $20 billion or even more cannot replicate this rate of growth. Other large companies that are growing right now are doing so through acquisitions.

Even Facebook has said that it will probably be unable to sustain this growth rate. The company has been showing users more and more ads in their Facebook news feed. For the past two years, this has been a good tactic to achieve revenue growth. But this is going to stop beginning with the middle of next year. Perhaps the Facebook news feed has reached a saturation point when it comes to ads. So, the company is preparing for a slow down in terms of revenue growth. This Wednesday, Facebook Chief Financial Officer Dave Wehner said that the company is ready for advertising growth to “come down meaningfully”.

Facebook CFO Dave Wehner also said that the company is expecting advertising to have a “much smaller contribution” to the growth of the company. Wehner added that Facebook still has plans to grow. But it is going to do it by adding more users. Also, Facebook plans to have the average time that Facebook users spend on the social network increase. A key element of the company’s strategy for that is video. The usage of video on Facebook has been increasing recently. Especially with the introduction of Facebook Live, users are now spending more time on Facebook.

Yet Facebook Stock Price Goes Down

Analysts are taken by surprise by Facebook’s success. Their expectations were for the company to hit a ceiling from where its growth would slow down. The simple fact is that it is unusual for a company the size of Facebook to grow at the rate of a small start-up. Brian Wieser is an analyst for Pivotal Research. He has looked at Facebook’s progress and predicts that the company’s growth rate is going to go down.

“The growth rate has to be slower; it’s a law of large numbers, if nothing else,”

said Brian Wieser.

Because everybody is being so cautious about advertising growth, Facebook’s stock price actually went down. Anxiety over Facebook’s future growth translated into a 7 percent decrease in stock price. Despite the good results that the company announced. Facebook did even better than Google parent company, Alphabet.

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