NEW YORK--Facebook Inc shares tumbled more than 7 percent in after-hours trading on Wednesday after the company warned that revenue growth would slow this quarter, offsetting strong earnings that handily beat Wall Street estimates.
In a call with analysts, Facebook Chief Financial Officer David Wehner said ad growth would likely slow "meaningfully" due to limits on "ad load," or the number of ads that Facebook can put in front of customers without alienating them.
He also said 2017 would be a year of aggressive investment that will see a substantial increase in expenses. Facebook shares were down 7.7 percent in after-hours trading, at $117.35.
"They have reached the limit of the ad frequency on news feed, so they are going to have to find revenue growth from other areas like pricing, user engagement, user base growth," said Josh Olson, an analyst at Edward Jones.
However, he said investment in the business should benefit Facebook in the longer term. "We have been down this road before with Facebook, they have invested something like this in mobile and we have seen it pay off. So we are looking at it as an opportunity," said Olson.
While the warning about the fourth quarter sent some investors running, by most metrics the company beat analysts' expectations on torrid mobile ad growth. Mobile ads accounted for 84 percent of Facebook's total advertising revenue of $6.82 billion in the third quarter that ended Sept. 30, compared with 78 percent a year earlier.
The company is also reaping the benefits of a big push into video, both on Facebook itself and on the Instagram photo app. Facebook reported a 55.8 percent rise in quarterly revenue, to $7.01 billion, beating analysts' average estimate of $6.92 billion, according to Thomson Reuters I/B/E/S.
Excluding items, the company earned $1.09 per share. On that basis, analysts had expected 97 cents per share.
Facebook said about 1.79 billion people were using its site monthly as of Sept. 30, up 16 percent from a year earlier.
