Despite a stellar Q3, 2 forces could clip Facebook's future results

Dive Brief:

Facebook released its Q3 earnings, showing that total revenue was up 47% year-over-year, advertising revenue was up 49% — beating analysts' expectations — and 88% of advertising revenue came from mobile for a total of $8.9 billion, up 57% year-over-year. Advertisers on Facebook now count over 6 million.
The largest social media platform also continued to increase its active user base with daily active users (DAUs) at 1.37 billion in September and monthly active users (MAUs) at 2.07 billion as of September 30, 2017, with each figure representing a 16% year-over-year increase.
In Q3, year-over-year ads revenue growth decelerated for the fifth consecutive quarter, a trend Facebook expects will continue going forward as growth shifts from being driven by increases in supply to being driven by price. The company also said it will significantly increase spending on security and expects this to drag down profitability going forward.

Dive Insight:

Facebook is having a great day following the release of its Q3 earnings report, which gave investors lots of news to be happy about, including significant growth in overall and advertising-related revenues. Still, two headwinds were pointed to in the company's call with analysts that are likely to impact the social media giant's future results.

First, Facebook founder and CEO Mark Zuckerberg said the company will be significantly increasing its investment in security going forward to try to prevent future abuse on its platforms like was seen with Russian interference before last year's presidential election. Facebook plans to double the number of people working on safety and security in the next year to 20,000, doubling or more its engineering focused on security and building new AI to detect bad content and bad actors. The investment in this area will increase enough that it will impact the company's profitability going forward, Zuckerberg warned analysts.

"I believe this will make our society stronger, and in doing so will be good for all of us over the long term," Zuckerberg said on the call. "But I want to be clear about what our priority is. Protecting our community is more important than maximizing our profits."

Zuckerberg’s statement comes at a critical time for Facebook as well as other online advertising platforms. The social media giant, along with Google and Twitter all sent general counsel this week to three scheduled meetings before the Senate Judiciary Committee on Russian influence in the 2016 presidential election.

The congressional questioning went beyond just Russian influence and fake news to insinuate lawmakers have concerns about the size and influence of the digital platforms. In a worst-case scenario, Congress could end up passing legislation that impacts digital platforms on how online advertising is handled, something that could affect Facebook’s bottom line if it were to come to pass.

These issues come at a time when Facebook's advertising business has matured to the point that growth is becoming less reliant on increases in supply as it runs out of places where it can put ads and more on price. This is another reason for the focus on building a healthy ecosystem that users trust, because if Facebook is successful with its security measures, it can conceivably start charging more for ads.