Facebook makes mountains of money through advertising — $6.2 billion last quarter alone, to be specific.
But as the company took analyst questions Wednesday in the wake of yet another glowing earnings report, CFO Dave Wehner said something interesting: Facebook’s ad load, or the total number of ads the company can show to each user, will be a relative non-factor for predicting Facebook’s future revenue growth starting this time next year.
Translation: Facebook is about to max out on the number of ads it can show users inside its flagship product, which means it will need to find other ways to grow the company’s ad business moving forward. Simply increasing the number of ads it shows people will not be an option.
“The optimal ad load is really a mix of art and science,” Wehner said. “We also want to be thoughtful about making sure each person’s overall feed experience has the right balance of organic and ad content.”
This was surprising to analysts, as evidenced by the fact that many of them then asked Facebook’s executives to elaborate on what this means.
So what does it mean?
It means that Facebook will need to do one of two things: 1) add more users, or 2) create better performing ads that it can sell for more money. Ideally, it will do both.
Facebook’s user base is already growing — it added 60 million new users last quarter alone — but the “create better ads” part is tougher.
Facebook will either need to do a better job proving its ads lead to sales, which it’s already trying to do, or offer more premium ads, like the commercials you might see on TV.
This is why Facebook is pushing hard into video, especially live video, but premium video ads can be tough to sell on mobile, which is where the majority of Facebook’s ad business has gone.
This is likely why Facebook COO Sheryl Sandberg said on the earnings call that the company is looking for more short-form video content from its partners, which sounds like the kind of stuff you could pair with premium video ads. It’s also probably why Facebook hired CollegeHumor’s Ricky Van Veen last month.
The good news for Facebook is that its flagship product is not the company’s only revenue driver. Yes, it’s the key revenue driver, but Facebook has plenty of other products where it currently sells ads (Instagram) and will most likely sell ads in the future (Oculus, Messenger, WhatsApp). So it owns a lot more real estate with ad-delivery potential.
Facebook also sells ads inside other people’s apps through its ad network, Audience Network. and that seems to be working. The company announced back in Q4 that this network had a $1 billion run rate, meaning if you took the network’s current performance and kept it consistent for an entire year, it would be a $1 billion business.
So Facebook’s ad load issue may not be much of an issue at all. But it’s still worth keeping in mind.