Facebook’s Robust Q3 Earnings Overshadowed By 2017 Revenue Concerns

On the tail of a lively second quarter, Facebook has unveiled an even stronger third quarter. However, this stellar performance was clouded by a roughly 8 percent drop in Facebook’s stock following an announcement hinting at increased spending in 2017, based largely on anticipated ad revenue, which mirrors the financial model of other digital giants like Google.

Let’s take a closer look at the key figures;

Facebook’s Q3 revenue stood at $7.01 billion, surpassing the expected $6.92 billion and marking an impressive 56 percent increase when compared to the same period last year. Earnings per share also rose, standing at $1.09 in comparison to the predicted $0.92. Furthermore, the breakdown of user engagement is as follows;

• Daily active users (DAUs)– DAUs averaged at 1.18 billion for September 2016, marking a 17% growth year-over-year.
• Mobile DAUs– Mobile DAUs averaged 1.09 billion for September 2016, up 22% from the previous year.
• Monthly active users (MAUs)– MAUs clocked in at a whopping 1.79 billion as of September 30, 2016, a 16% year-over-year increase.
• Mobile MAUs– Mobile MAUs tallied up to 1.66 billion as of September 30, 2016, marking an increase of 20% compared to the previous year.

Compared to analysts’ expectations, Facebook’s overall performance exceeded predictions. The social media giant added a significant 80 million new users in Q3 and has garnered over a billion daily active users to date.

Other Big Takeaways from Q3 2016

• Mobile advertising revenue– Around 84% of advertising revenue for Q3 2016 was attributed to mobile advertising, a noticeable increase from 78% in Q3 2015.
• Capital expenditures– These totaled $1.10 billion in Q3 2016.
• Cash and marketable securities– These amounted to $26.14 billion at Q3’s end.

Factoring in the 84% of ad revenue, Facebook’s total revenue stands at $5.7 billion. However, the company is also pushing to diversify its offerings. Last month, Facebook rolled out Workplace, positioning itself as a competitor to enterprise solutions providers like Salesforce. Although it could take time for this venture to directly impact earnings, Facebook’s push towards diversifying revenue streams appears promising.

So what caused the decline in Facebook stock?

As a result of cautionary statements from Facebook CFO David Wehner, investors reacted to warnings of likely declining growth rates in future quarters. Wehner also raised concerns about Facebook’s limited ad space, underscoring the necessity for investment in other ventures in 2021, which would also mean increased hiring. The question remains, how much of the News Feed can be allocated to ads? According to Wehner, not much more.