Facebook executives have warned investors about overestimating sales growth prospects, stating that the platform is limited by the number of ads that they can display.
Bloomberg reports that following a conference call related to their first-quarter earnings report, Facebook stated that they were expecting revenue growth to be down “meaningfully” once the company decreases the number of advertising spots in users news feeds over fears that advertising saturation on the platform may affect user experience. As a result, Facebook shares fell as much as 4.2 percent despite first-quarter sales beating estimates and a 17 percent increase in monthly users to 1.94 billion.
Facebook and Google have become the two largest online advertising platforms in recent years, especially in the mobile device advertising market. Rob Sanderson, an analyst at MKM Partners, discussed Facebook’s warning saying, “A great quarter, but what comes next? We’re just kind of in this wait-and-see mode in terms of the impact on the business. We don’t know how much ad load has driven growth.”
Facebook is reportedly working on improving the quality of their advertisements and market targeting rather than flooding their platform with more ads. COO Sheryl Sandberg said, “We carefully track the impact of ads on the user experience.” The company stated that ad load wouldn’t be a significant revenue contributor even after this year.
Facebooks’ first-quarter sales increased to 49 percent reaching $8.03 billion, compared to the $7.83 billion that analysts had projected. The companies net income rose to $3.06 billion, putting earnings per share at $1.04, which topped the .87 average estimate from Bloomberg. Analysts are predicting a 40 percent sales gain in the current period. Facebook shares dropped to $145.45 in extended trading following reports of a decline in revenue growth after dropping by less than 1 percent to $151.80 at the close of markets in New York.
Facebook has come under fire recently for the content being allowed on their platform, Law enforcement authorities launched a manhunt for murderer Steve Stephens after he published a video of him shooting an elderly man to Facebook. James Cakmak, an analyst at Monness Crespi Hardt & Co. said that fake news on Facebook’s platform and the live videos “need to be taken incredibly seriously because there are implications for user engagement.” He continued, “these are critical issues that need to be addressed.”
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