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Facebook ad growth will take a hit in 2017 as it approaches peak ad limits

Facebook reported $8 billion in revenue and a lion share of came from mobile advertising for the quarter ended March 2017. Mobile ad revenue stood at $6.7 billion, growing 58% and represented 85% of the ad revenue. But this will change in mid-2017 as CFO David Wehner said that Facebook has maxed out how many ads in can squeeze into people’s news feeds.

“With regards to revenue, we continue to expect that our ad revenue growth rates will come down meaningfully over the course of 2017,” Wehner said. Advertising revenue is expected to take a further beating the third quarter as Facebook continues to fight ad blockers on desktops.

Wehner added that Facebook has already seen deceleration US and Canadian markets. “We’ve been talking about expecting a deceleration in ad revenue growth, and we saw that play out in the US and Canada modestly,” he added.

Which is why Facebook is now looking aggressively looking to push ads on its other properties and monetize them instead. Notes from the analyst conference call.

Push towards AR

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In March, Facebook introduced two new cameras and CEO Mark Zuckerberg said that this was the first step to creating an augmented reality platform. Note that during the F8 conference, the company opened its augmented reality platform to developers. Developers can now employ image recognition technology to create camera effects, designs, code-driven animations, etc.

Zuckerberg said that AR can use object recognition where users can point a camera at an object and get card information and even include a buy button. “So there are lots of different ways that over time this kind of content is going to both augment existing real-world objects and eventually replace them, which I think is going to be an interesting opportunity,” he added.

On monetizing Messenger and WhatsApp

Zuckerberg detailed on how Facebook would be monetizing its Messenger and WhatsApp applications. He said that businesses using the apps organically is crucial. User behaviour will have to change where they will reach out to customer support or for getting news content on Messenger or WhatsApp. “In terms of making money on that, once we have that behaviour, I think there are going to be a number of ways that we can amplify that,” he added.

He added that Facebook has started this process by showing ads on news feeds where users will be able to communicate with the business using Messenger or WhatsApp. Facebook may also start allowing paid content in Messenger to drive engagement and monetization.

Longer format videos

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Facebook said that it will be looking at building an ecosystem for long-form video and will be looking to partner with content providers. “In the long run, we expect to see a revenue share model on the platform. And obviously, we’re going to be in an area where we’re sharing revenue with content providers,” CFO David Wehner said.

But in the meantime, longer format videos will start seeing ad breaks and mid-roll ads. Wehner added that ad Breaks will allow Facebook to have a monetization strategy with that longer-form content.

Ad breaks in Instagram Stories

Note Facebook has started to inject ad breaks in Instagram Stories as well. Instagram Stories now has more than 200 million daily active users while WhatsApp Status has more than 175 million daily active users.

Meanwhile, Instagram is also looking at influencer marketing to shore up its ad revenues. “When you think about influencer marketing, we definitely see publishers interested in it, brands interested in it. And so we’ve worked on branded content, the ability to tag a sponsor, share posts, and insights. And the financial arrangement remains between the sponsor and the publisher,” COO Sheryl Sandberg said.

***

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Financials

– Total revenue was $8 billion, up 49%.

– Ad revenue was $7.9 billion, up 51%.

– Mobile ad revenue was $6.7 billion, up 58%, and represented approximately 85% of ad revenue.

– Payments and other fees revenue were $175 million was down 3%. Other fees revenue is primarily generated from payments related to games played on personal computers.

– Asia-Pacific ad revenue grew at 60% while rest-of-the-world ad revenue grew 66%.

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– Europe and North America ad revenue grew at 47%.

– Operating income was $3.3 billion, representing a 41% margin.

– Net profit was $3.1 billion.

Download: Financials | Transcript 

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