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Why Facebook’s Growth Is Cooling Down

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Shifting ad strategy

Facebook (FB) has in recent quarters warned about an impending slowdown in its growth rate as a result of a shift in its advertising strategy. The company is moving away from the practice of relying on increasing news feed ad load to drive revenue growth. Instead, it wants to drive future growth through videos and subscriber growth. During the shift from ad-load-based growth to new strategies, the company expects its revenue growth rate to slow. The slowdown is expected to start showing in the second half of this year.

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Battling ad blockers

In its 2Q17 results, Facebook shared more details about its impending top-line growth slowdown. In addition to repeating that the ad load will play a less significant role in driving advertising revenue growth, Facebook said that its efforts to counter the rise of ad blockers will slow its desktop ad revenue growth rate, which will contribute to the overall growth slowdown.

The company further said that despite ongoing Messenger monetization efforts, it doesn’t expect Messenger to offset the predicted slowdown in advertising revenue growth in its flagship Facebook app.

Ad business keeps Facebook alive

Facebook’s advertising revenue rose 47% to $9.2 billion in 2Q17, contributing 99% of its overall revenue. But the online advertising industry is highly competitive, and Facebook has to constantly watch over its shoulders for threats from the likes of Alphabet’s Google (GOOGL), Twitter (TWTR), Snap (SNAP), and Yelp (YELP).

The above chart shows Facebook ad revenues over the last five quarters.

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