The future is here for Facebook when it reports its second-quarter financial results on Wednesday in the week ahead. A year ago, the social-media giant gently began to warn shareholders not to expect its monster revenue growth to continue. In the language of Wall Street, sales growth would be decelerating.
Why? Because Facebook has reached peak ad load, or is close to it. Ad load is the euphemistic phrase the company uses to describe its practice of jamming advertising into user’s news feeds. More ads equals more sales for Facebook, translating into big revenue growth that has helped push the stock up 40 percent over the past year.
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Slower growth is far from no growth, though. After all, in this most recent quarter, the two-billionth active monthly user joined the network, further cementing its position as the leading global social-media platform. By the way, Facebook’s portfolio also includes the world’s second- and third-largest social network apps in the world: Facebook Messenger and WhatsApp.
The company’s revenue growth has room to fall, if it must. A year ago, total advertising payments and other fees jumped 59 percent from a year earlier. That sets up a tough comparison for the quarterly results due out Wednesday. This top line number is where management has altered shareholders to expect a smaller increase, especially in the second half of this year. But it has been quick to point to two other drivers of growth: more people signing up and using Facebook regularly, and advertiser demand to get in front of those users.
So while Facebook may be reaching the limit of its supply of ad space inside user’s feeds, it remains confident that the supply of new users, and the demand by advertisers to pay for them, remains strong.
Financial journalist Tom Hudson hosts “The Sunshine Economy” on WLRN-FM in Miami. Follow him on Twitter @HudsonsView.