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Facebook's next growth engines still warming up

Apr 24 2014, 11:06 IST
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Even as Facebook gave investors the good news, the company made it clear that other money-making efforts such as video ads would not bear fruit in the near future. Even as Facebook gave investors the good news, the company made it clear that other money-making efforts such as video ads would not bear fruit in the near future.
SummaryFacebook Inc has a message for Wall Street: Don't expect new revenue streams anytime soon.

Facebook Inc has a message for Wall Street: Don't expect new revenue streams anytime soon.

The world's No. 1 Internet social network delivered its strongest revenue growth in several years during the first quarter, as its mobile ad business gained steam.

But even as Facebook gave investors the good news, buoying its stock by roughly 3 percent in after-hours trading, the company made it clear that other money-making efforts such as video ads and ads within its Instagram photo-sharing app would not bear fruit in the near future.

"That will probably be the most disappointing statement to come out of the call," said Macquarie Research analyst Ben Schachter. "Many folks were anticipating a next leg of growth."

Facebook Chief Operating Officer Sheryl Sandberg told analysts on a conference call on Wednesday that Instagram ads, video ads and a nascent mobile ad network were all still in experimental phases and that none of them would make a meaningful contribution to revenue in 2014.

That may dash the hopes of some investors, who had expected Instagram to start generating revenue two years after Facebook acquired it for $1 billion.

"We're very focused on consumer growth, and we move slowly and deliberately in monetization," Sandberg said, referring to the limited number of ads on Instagram. "We don't see the need or the urge to ramp this as quickly as we possibly can."

Facebook is also going slow with auto-play video ads. Facebook said earlier this year it would allow a small group of advertisers to display 15-second video ads on Facebook, but Sandberg said on Wednesday the company was still gauging users' response and was in no hurry to open the service up broadly to advertisers.

The comments are likely to cause financial analysts and investors to re-appraise Facebook's near-term prospects. In notes to investors released prior to Wednesday's earnings report, Morgan Stanley estimated that video ads could contribute $900 million to Facebook's top line this year, while Cowen & Co targeted $1 billion in video ad revenue.

Shares of Facebook remained up in after hours trading, even after the company warned that its advertising revenue growth would slow throughout the year, as it faces tougher year-on-year comparisons.

Investors are willing to give Facebook some leeway, given its strong performance building the mobile ad business, said Macquarie's Schacther.

"They've earned the benefit of the doubt, that even if it doesn't come this quarter, or the next quarter, that it will come," he said of

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