Facebook Stock Slides After CFO Warns Of Slowing Growth

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Updated July 28, 2021 7:08 pm ET / Original July 28, 2021 5:20 pm ET

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Facebook shares turned sharply lower in late trading Wednesday after the company warned of slowing growth for the remainder of the year. The cautious outlook comes even as digital ad rivals have offered a bullish forecast for online advertising in the coming months.

Facebook (ticker: FB) shares were down 3.9% in the after hours session. The stock rose 1.5% in regular trading Wednesday, closing at $373.28.

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

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

This was a good quarter for our product and business,” CEO Mark Zuckerberg said in the earnings conference call Wednesday. “There are now more than 3.5 billion people who actively use one or more of our services, and I’m excited about our product roadmaps ahead.”

CFO David Wehner said in the earnings release 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 quickly as the digital ad industry recovered from Covid-19-related slowdowns. Using a comparison to 2019, the company said growth would slow “modestly” in the second half.

Typically the second half of the year, especially the fourth quarter, are strong for online ad companies because they include the holiday shopping season. For the third quarter, analysts expect Facebook to earn $2.95 a share on revenue $28.2 billion.

Wehner reiterated that changes Apple has made to user tracking in iOS apps will have a greater effect in the third quarter than they did in the period ending in June. In the conference call Wehner said that even though Facebook has benefitted from a strong digital ad market, advertisers have had difficulty adapting to the changes. Facebook is introducing new tools to help them do so, he said.

Facebook’s second-quarter advertising revenue grew 56% to $28.6 billion compared with a year ago, boosted by nearly a 50% increase in the average price per ad, and a 6% increase in the number of ads Facebook displayed, according to Wehner. Ad growth for the rest of the year will also be powered by more expensive ads, the CFO said.

During the earnings call, Chief Operating Officer Sheryl Sandberg said that the best 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 was recovering.

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

Facebook reported its monthly active user count rose 7% from a year ago, to 2.9 billion, which roughly met investors expectations. Daily active users also rose 7% compared with the year-ago period, to 1.91 billion. Overall, across its various platforms, Facebook said 3.51 billion use one of its services a month, such as WhatsApp, Instagram, and Facebook itself.

Facebook’s Other segment revenue rose 36% to $497 million compared with a year ago. The “other” bucket includes the fast-selling virtual reality headset Quest 2, that executives have touted as the first mainstream VR device. Analysts had forecast revenue of $690.5 million for the segment. In the conference call Wehner said that the second quarter included a revenue adjustment for returns related to a Quest 2 recall.

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

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