Facebook warns of significant slowdown in sales growth

Facebook Inc said on Wednesday it expects revenue growth in the third and fourth quarters to "decelerate significantly," sending the social media giant's shares down about 5% in extended trading.

The warning overshadowed the company's beat on Wall Street estimates for quarterly revenue, bolstered by increased advertising spending as businesses build their digital presence to cater to consumers spending more time and money online.

Monthly active users came in at 2.90 billion, up 7% from the same period last year but missing analyst expectations of 2.92 billion and marking the slowest growth rate in at least three years, according to IBES data from Refinitiv.

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"The user growth slowdown is notable, and highlights the engagement challenges as the world opens up. But importantly, Facebook is the most exposed to Apple's privacy changes, and it looks like it is starting to have an impact to the outlook beginning in 3Q," said Ygal Arounian, an analyst at Wedbush Securities.

Facebook said it expects Apple's recent privacy change, which requires iPhone app developers to begin asking users' permission to collect certain data for ads, to impact its ability to target ads and therefore ad revenue in the third quarter. Facebook has argued Apple's recent requirement that iPhone app developers begin asking users' permission to collect certain data for ads would harm its business and hurt small companies that rely on personalized advertising.

"Everyone will be watching any developments to their ad targeting system closely to see how that plays out given its huge role in helping Facebook monetise its apps," said Tom Johnson, WPP Mindshare's chief digital officer.

The company's total revenue, which primarily consists of ad sales, rose to $29.08 billion in the second quarter from $18.69 billion a year earlier, beating analysts' estimates of $27.89 billion, according to IBES data from Refinitiv.

Its revenue from advertising rose 56% to $28.58 billion in the second quarter ended June 30, Facebook said.

Facebook, like its peers, has seen increased demand for digital ads as the pandemic drove consumers to shop largely online, forcing several businesses to create online stores and markets using social media platforms.

"In the third and fourth quarters of 2021, we expect year-over-year total revenue growth rates to decelerate significantly on a sequential basis as we lap periods of increasingly strong growth," Chief Financial Officer Dave Wehner said in the earnings release.

Net income rose to $10.4 billion, or $3.61 per share, from $5.18 billion, or $1.80 per share, a year earlier. Analysts had expected a profit of $3.03​ per share.

The company continues to face pressure from global lawmakers and regulators, including from the U.S. Federal Trade Commission which has until Aug. 19 to refile its antitrust complaint against the company and from a group of states who said on Wednesday they would appeal the judge's dismissal of their lawsuit.

Facebook hit $1 trillion market cap for the first time last month when the judge threw out the original complaints.