Facebook’s social network fuels growth as ad slowdown looms

Beneficiary of increase in digital ad spending

SAN FRANCISCO • Facebook Inc.’s main social network is still driving sales growth, even as executives seek to temper investor exuberance about future quarters.

First-quarter revenue beat analysts’ estimates as monthly users jumped to 1.94 billion. With Facebook’s massive audience and its many options for brands to reach those consumers through its social, messaging and photosharing apps, the company has been one of the two main beneficiaries of an uptick in digital ad spending, alongside Google, especially on mobile phones.

Facebook has been saying it will stop increasing the frequency of ads it shows in users’ news feeds later this year, potentially tapping the brakes on the frenzied pace of sales growth.

It will take time for the company to prove that other bets, such as its heavy investment in video and other apps such as Instagram, Messenger and WhatsApp, can start contributing meaningfully to revenue in future quarters.

“A great quarter, but what comes next?” said Rob Sanderson, analyst at MKM Partners. “We’re just kind of in this wait-and-see mode in terms of the impact on the business. We don’t know how much ad load has driven growth.”

Facebook is more focused on improving the quality of ads and targeting the messages to make them more valuable, rather than quantity, chief operating officer Sheryl Sandberg said in an interview.

“We carefully track the impact of ads on the user experience,” she said.

The Menlo Park, Calif.based company said sales climbed 49 per cent to $8.03 billion, compared with the $7.83 billion analysts had projected. Net income rose to $3.06 billion, or $1.04 a share, compared with the 87-cent average estimate compiled by Bloomberg.

Facebook shares slipped about 2 per cent in extended trading following the report, after declining less than 1 per cent to $151.80 at the close in New York.

Facebook in the last few years has depended on its social network — a mobileadvertising machine — to fund investments in other areas, which are much less developed as businesses. The company spun off its Messenger chat tool as a separate app in 2014, and just this year started testing advertising on it, alongside bot functions that let businesses reach consumers. Messenger now has 1.2 billion users. WhatsApp, which Facebook purchased the same year for $22 billion, hasn’t started making money yet.

The company is also pouring money into longer-term businesses and ideas, such as virtual-reality goggles and connecting the world to the Internet. In a presentation to developers last month, Facebook discussed furtheroff projects, like using technology to type directly from brain waves and developing a way to feel words.

Facebook’s work with Instagram is seen as proof that it can replicate its main network’s success in advertising on other properties. Instagram, now with 700 million users, has started adding to revenue growth, though the company doesn’t break out a number. The company has also benefited as more advertisers purchase video ads. Mobile now accounts for 85 per cent of the company’s advertising revenue, the company said Wednesday.