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Facebook Earnings Preview: Instagram Drives Growth As News Feed Revenue Slows

Ad growth has been down year-over-year for four straight quarters, but Facebook’s stock just hit an all-time high. Will it last?

Facebook Earnings Preview: Instagram Drives Growth As News Feed Revenue Slows
[Screenshot: courtesy of Instagram]

By most meaningful measures, Facebook is flying. It reached the milestone of 2 billion active users a month ago, and its stock is currently trading at near-record highs of $165.12 a share. But there are a lot of signals coming out of Mark Zuckerberg’s social media behemoth that its phenomenal growth is starting to slow.

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That’s one of the big things to look for tomorrow afternoon when Facebook reports its second-quarter 2017 earnings. Analysts are predicting the company will announce revenues of $9.2 billion, and earnings per share of $1.13, up from 97¢ a year ago. But year-over-year revenue growth has been down for four straight quarters, as Recode wrote, and Facebook has been warning for some time that, as growth inevitably slows, ad revenue will cool down, too.

Still, the company has not been sitting still as profits wrinkle from news feed advertising. It has said that it’s testing ads in its huge Messenger business, as well as Instagram.

Video, of course, has become a major part of Facebook’s business, too, but it’s expensive to operate and, according to CNBC, there’s an expectation that growing expenses related to the blossoming video side of the business will cut into Facebook’s bottom line. As a result, analysts have lowered their predictions for the company’s earnings for the full year, from $5.44 a share earlier in the year to $4.85 a share now–the equivalent of 11% lower profits, Forbes wrote.

On the other hand, there’s a lot of optimism around Instagram, Facebook’s popular online photo- and video-sharing service, and a perennial thorn in the side of competitor Snapchat. As Seeking Alpha wrote, in the 11 months since Instagram Stories was launched, it has grown to 250 million users, far more than Snapchat’s 166 million. Instagram’s growth is likely to be the main driver behind post-earnings stock price increases.

Facebook will issue its Q2 earnings report after the market closes tomorrow. It will follow with a conference call with top leadership, during which it will discuss the quarterly performance, as well as some of its plans for the third quarter and the rest of the year. Please check out FastCo News for our coverage.

About the author

Daniel Terdiman is a San Francisco-based technology journalist with nearly 20 years of experience. A veteran of CNET and VentureBeat, Daniel has also written for Wired, The New York Times, Time, and many other publications.

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