When you get to be as large as Facebook—something very few companies ever manage to do—it becomes more and more difficult to keep growing at the same rate you did when you were smaller. This is often referred to as the “law of large numbers.” But Facebook shows few signs of hitting any kind of growth limit just yet.
Many of the Wall Street analysts who follow the giant social network have been warning about a slowdown for some time, and even Facebook itself has spoken about how it expects to see a slowdown in the growth rate of its advertising revenue. Those fears helped push the stock price down after the company posted its results in November.
On Wednesday, however, investors appeared to be all smiles, after Facebook (FB) beat earnings and revenue estimates for its most recent quarter, and dramatically increased its user base. The shares were up in after-hours trading.
Instead of the $1.31 per share in profit that Wall Street was expecting, Facebook made $1.41, and its total revenue—the vast majority of which is advertising-related—came in at $8.8 billion for the quarter, compared with consensus estimates of $8.5 billion. That represented growth of more than 50% over the same quarter of last year.
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For the full year, Facebook’s revenue climbed by $10 billion or 54% to just over $27.5 billion, and the company’s net income for the year more than doubled to $10 billion.
Those numbers seemed to ease some of the concerns that investors had, and in particular it suggested that fears of Facebook hitting an ad-revenue peak may have been overblown. The company had warned that it was getting close to the maximum “ad load” or percentage of ads in the average user’s news feed. But it managed to grow significantly anyway.
The main way it did so was by simply increasing the size of the pie: During 2016, Facebook said it added more than 265 million new monthly active users. That’s almost as many users as Twitter has in total. Facebook now has more than 1.8 billion users who log on every month, and more than 1.2 billion users who do so every day.
Another major growth engine has been mobile. Over 1 billion of Facebook’s daily users access the site primarily on their phones or tablets, and that number grew by 23% in the latest quarter. Mobile ad revenue now makes up about 84% of the company’s total ad revenue.
Even the news that Facebook had lost a $500 million copyright infringement lawsuit launched by a virtual reality company did nothing to dampen investors’ delight in the social network’s results. Chief operating officer Sheryl Sandberg didn’t comment on the decision except to say that the judgement was “not material” to Facebook’s business.
Some believe that Snap Inc., formerly known as Snapchat, poses a threat to Facebook because of how quickly its user base and ad revenue appear to be growing (Snap is expected to go public soon with a potential market valuation of more than $18 billion). But for now at least, investors seem fairly sanguine about Facebook’s future.
