Facebook blows past estimates, but warns growth will ‘decelerate’ in second half of year

“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,” Facebook Chief Financial Officer David Wehner said in a statement announcing the results. “We continue to expect increased ad targeting headwinds in 2021 from regulatory and platform changes, notably the recent iOS updates, which we expect to have a greater impact in the third quarter compared to the second quarter.”

Wehner, always a cautionary voice during Facebook’s quarterly results, repeated the second-half concerns during a conference call with analysts late Wednesday.

Monthly active users, a key barometer of Facebook’s growth globally, improved 7% to 2.9 billion, in line with expectations of 2.91 billion. Daily active users in the U.S. and Canada, however, continued to be flat.

Facebook, like Google parent Alphabet Inc.  GOOGL, +3.18% GOOG, -0.30%, Twitter Inc. TWTR, +2.39%, and Snap Inc.  SNAP, +2.96% before it, benefited greatly from a wave of online advertising as more small businesses use social media and search to reach consumers during the pandemic.

At the same time, non-advertising revenue from e-commerce, and AR/VR continued to grow, climbing 36% to $497 million. In a recent interview with The Verge, Zuckerberg called out augmented and virtual reality as the next frontiers in a years-long quest for its billions of users to communicate, shop and sell products. During a conference call with analysts late Wednesday, Zuckerberg stressed the importance of the metaverse, a virtual platform that he considers the successor to the mobile internet. “The metaverse will be the next chapter for us as a company, from people seeing us as a social-networking company to a metaverse company,” he said.

“We expect a super ad rebound but more importantly we are looking at the impact of IDFA [Apple Inc.’s AAPL, -1.22% Identifier for Advertisers] on the second half of the year and whether Facebook can evolve the user experience through virtual reality,” Dan Flax, senior research analyst at investment firm Neuberger Berman, told MarketWatch before the earnings announcement. “Facebook must also explain to regulators how data is used.”

Facebook’s ad haul comes a day after Google reported record revenue of $61.9 billion and a whopping $18.5 billion in earnings.

What makes the results all the more eye-opening — or conversely, proves the point of federal regulators — is that Facebook, Alphabet, and Apple Inc. are putting up outrageous numbers despite increased antitrust scrutiny by the Justice Department, Federal Trade Commission, state attorneys general, class-action lawyers, and consumer-rights organizations.

Facebook shares are up 37% so far this year, while the broader S&P 500 index  SPX, -0.02% has gained 17% in 2021.