Facebook Inc.’s platforms are starting to feel like homes with too much furniture. It is getting difficult to move around.
In addition to ads on its legacy Blue app, those on Instagram, which the company acquired for $1 billion in 2012, accounted for roughly a quarter of Facebook’s overall revenue in the 12 months ended Sept. 30, according to consensus estimates compiled by Visible Alpha. Ads on both platforms now seem to be reaching a saturation point at just the wrong time.
Amid an increasingly strict regulatory environment, it seems unlikely Facebook can simply buy the next Instagram to populate. That could present growing pains for a mature company that has consistently increased its ad impressions to boost overall revenue over the last five years.
Open Facebook or Instagram before a friend has posted since your last visit and your newsfeed might well appear to be nothing but a lengthy, vertical banner of stuff for sale. That experience is by design: According to an analysis of transcripts of multiple investor calls available on FactSet, Facebook has increased the number of ads served on its platforms by a quarterly average of nearly 30% year on year since the third quarter of 2015.
Interestingly, while ad pricing has risen over that period on the same basis, prices began to decline in the second half of 2018, with the greatest declines this year. In the second quarter, for example, Facebook said ad prices declined 21% versus the prior year, while ads served increased 40%.
