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Facebook has huge third quarter with $7 billion in revenue

While the social media giant saw huge growth in the third quarter, analysts were still spooked by the company's warnings that ad load would start decreasing next year and have a potential effect on future revenue growth.

By
Stephen Feller
Facebook reported a huge third quarter -- $7.01 billion in revenue and 1.79 billion users -- but warned ad load on the company's website and apps is nearing capacity and revenue growth may not grow as fast in the near future. Facebook CEO Mark Zuckerberg, pictured while U.S. Secretary of State John Kerry a tour of Facebook's new headquarters in Menlo Park, Calif., said the company is finding new services and ways to grow its user base in order to continue growing the number of it can sell and deliver. File photo by U.S. Department of State/UPI
Facebook reported a huge third quarter -- $7.01 billion in revenue and 1.79 billion users -- but warned ad load on the company's website and apps is nearing capacity and revenue growth may not grow as fast in the near future. Facebook CEO Mark Zuckerberg, pictured while U.S. Secretary of State John Kerry a tour of Facebook's new headquarters in Menlo Park, Calif., said the company is finding new services and ways to grow its user base in order to continue growing the number of it can sell and deliver. File photo by U.S. Department of State/UPI | License Photo

WASHINGTON, Nov. 2 (UPI) -- Facebook had a monstrous third quarter, beating estimates for revenue and user growth, but the company's stock price dropped because analysts were worried by warnings of the website's ad load hitting maximum, which will reduce future growth of revenue.

Facebook reported it earned $7.01 billion in revenue and grew to 1.79 billion monthly users during the third quarter of 2016, increases of 59 percent and 16 percent from the same period in 2015. Despite the company's obvious health, it warned investors and analysts Wednesday that astronomical growth will not continue forever.

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The company's stock dropped 7 percent Wednesday after trading closed after it issued a warning that ad load -- the number of ads it can deliver to users while on the website or using the mobile app -- is nearing its maximum.

Ad load is one of three factors that has driven Facebook's growth as a company, with the other two being user growth and increasing the time users spend looking at Facebook. Facebook's main source of revenue is advertising, and while there are many ways to increase the number of ads a user sees, there are only so many that can be shoved in people's faces at once.

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"We continue to see good opportunities to grow time spent. We see good opportunities to grow users. We continue to see good opportunities to grow advertiser demand," Facebook's chief financial officer, David Wehner, said during the call. "Really, the mix of ad units is part of what we're doing, I think, really well. We're developing a number of new ad products as well as enhancing the ad products that we have out in the market today, so we're taking what is a great mobile ad product on Facebook and Instagram and making it even better."

Facebook made $7.01 billion, significantly higher than the predicted $6.92 billion and a 59 percent increase from the $4.5 billion the company raked in during the third quarter of 2015. The company also saw it's profit hit $2.379 billion, a 16 percent increase from the $2.05 billion it reported in the second quarter and a 160 percent increase from 2015.

User growth saw big gains as the reported 1.79 billion monthly users is 16 percent higher than last year, daily active users increased 17 percent from last year to 1.18 billion, mobile users increased 5.7 to 1.66 billion and the app surpassed one billion users who access Facebook only from their smartphones.

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Even with growth in revenue and users, Facebook said it is pursuing new and better methods for delivering advertising since it has nearly reached the ceiling for the number of ads that can be delivered to users. Getting people to spend more time on Facebook and adding new users are useful, but the company is betting on other ideas.

Facebook has been working since August to make ad blockers useless when the website is accessed from a computer. The company is also working to make the camera a more central way of interacting with the social network -- clearly taking cues from social competitor Snapchat -- and plans to invest more money in virtual reality, which it sees as a big opportunity.

Facebook CEO Mark Zuckerberg said during the call the importance of cameras to the future of the app, in addition to giving people new ways to interact with it, is the future of the company as ad load slows.

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"We had another good quarter," Zuckerberg said. "We're making progress putting video first across our apps and executing our 10 year technology road map."

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