Facebook earnings were strong but CFO warns of slowing growth

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Facebook shares fell sharply in late trading on Wednesday after the company warned of slowing growth for the rest of the year. The cautious outlook comes even as digital advertising competitors have presented bullish forecasts for online advertising in the coming months.

Shares of Facebook (ticker:FB) fell 3.9% in the post-close session. The stock rose 1.5% in regular trading Wednesday, to close at $373.28.

The social media platform reported second-quarter net income of $10.4 billion, or $3.61 per share, compared to net income of $5.2 billion, or $1.80 per share, a year ago. Revenue increased 56% to $29.1 billion.

Analysts had expected earnings of $3.02 per share on revenue of $27.9 billion.

“This has been a good quarter for our products and business,” CEO Mark Zuckerberg said on an earnings conference call on Wednesday. “There are now over 3.5 billion people actively using one or more of our services, and I’m excited about our future product roadmaps.”

Chief Financial Officer David Weiner said in the earnings statement that the company expects year-over-year revenue growth to slow “significantly” through the end of the year since the company’s second half of 2020 grew rapidly as the digital advertising industry recovered from a Covid-19-related slowdown. Using a comparison with 2019, the company said growth will slow “modestly” in the second half.

The second half of the year, and especially the fourth quarter, is usually strong for online advertising companies as it includes the holiday shopping season. For the third quarter, analysts expect Facebook to earn $2.95 per share on revenue of $28.2 billion.

Wehner confirmed that changes Apple made to tracking users in iOS apps will have a greater impact in the third quarter than they did in the period ending in June. Weiner said on a conference call that while Facebook has benefited from a robust digital advertising market, advertisers have had difficulty adapting to the changes. He said Facebook is introducing new tools to help them do just that.

Facebook’s ad revenue for the second quarter grew 56% to $28.6 billion from a year ago, buoyed by a roughly 50% increase in average ad price, and a 6% increase in the number of ads Facebook serves, Wehner said. The CFO said ad growth for the rest of the year will also be supported by more expensive ads.

During the earnings call, Chief Operating Officer Sheryl Sandberg said the top performing advertising sectors were also those that did well throughout the Covid-19 pandemic, such as e-commerce, retail and consumer goods. She added that travel is recovering.

“Our performance continues to be driven by the ongoing digital transformation that has accelerated during the pandemic and our long-term investments in tools and products to help businesses make the online transformation,” Sandberg said.

Facebook reported that the number of monthly active users rose 7% from last year, to 2.9 billion, which roughly met investor expectations. The number of daily active users also increased by 7% compared to the same period last year, to 1.91 billion. Overall, across its various platforms, Facebook said 3.51 billion use one of its services per month, such as WhatsApp, Instagram, and Facebook itself.

Facebook’s other segments revenue increased 36% to $497 million compared to last year. The “other” group includes the fast-selling Quest 2 VR headset, which executives touted as the first major virtual reality device. Analysts had expected revenue of $690.5 million for this segment. Weiner said on the conference call that the second quarter included a revenue adjustment for revenue related to the Quest 2 draw.

Facebook maintained its guidance for total 2021 expenditures of $70 billion to $73 billion and capital spending between $19 billion and $21 billion. Facebook said its user count was up 21% from a year ago, to 63,404 at the end of the June quarter.

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