Thursday 3 November 2016 9:01 am

Here's why Facebook shares are down despite an impressive revenue rise

Facebook’s shares fell as much as six per cent in after-hours trading on Wednesday, despite the social media giant beating expectations with its latest results for the third quarter.

Total revenue came in at $7bn (£5.7bn) – up 56 per cent year-on-year and ahead of Wall Street expectations of $6.9bn – with advertising making up $6.8bn of the total, the majority (84 per cent) of which came from mobile.

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Facebook reported diluted earnings per share of 82 cents, which was up 165 per cent on the same period last year.

Chief executive Mark Zuckerberg described it as “another good quarter”.

Highlighting the results on his Facebook page, the founder revealed the site now represents a community of 1.8bn people. The social media platform also claimed a milestone of 1.2bn people using its apps every day, which include the main Facebook app, chat app Facebook messenger, and Instagram.

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He added: “Our biggest focus has been putting video first across our apps. People are creating and sharing more video than ever, so we're building new tools to make it easier to express yourself in creative ways.”

However, finance chief David Wehner indicated in a call with investors that revenue growth from advertising could “come down meaningfully” after mid-2017.

Essentially, the number of ads which it can show in people's news feeds is reaching its limit.

"Facebook’s execution when it comes to the move to mobile and the importance of video has been flawless but there are limits to which you can stuff the services full of advertisements," said Edison Investment Research analyst Richard Windsor.

However, the analyst was confident that Facebook is preparing to grow other newer parts of the business in the long-term. He said:

"To return to rapid growth, Facebook needs to address the other segments of the digital life pie. We have observed for some time that this is exactly what Facebook is doing but its developments in these segments are not yet mature enough to begin generating revenue."

"This is where we think the street has got it wrong as its love of straight lines has forced it to implicitly include revenues in its estimates from services that are not yet ready for monetisation," he added

Facebook’s share price fell six per cent to $119.42 in after-hours trading as a result of the warning.

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