Facebook warns growth will slow, shares dip

Wed Nov 2, 2016 8:47pm EDT
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By Rishika Sadam and Dustin Volz

(Reuters) - Facebook Inc (FB.O: Quote) shares tumbled 7 percent in after-hours trading on Wednesday as 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 (GOOGL.O: Quote) last week also announced strong revenue and profit growth, while traditional media companies like the New York Times Co (NYT.N: Quote) 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.   Continued...

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