Facebook is counting on Stories to lead the future of its social networks, but the new way of sharing video has not caught on with advertisers yet. And the company’s sales growth is slowing down.
As Facebook released its third-quarter results Tuesday, ad sales hit $13.5 billion, up 33 percent year-over-year. By comparison, in last year’s third-quarter, Facebook’s ad revenues were up 49 percent from the year-ago figure.
By putting more emphasis on the Stories format, Facebook has been going through a metamorphosis similar to its transformation from a desktop-first offering to a mobile-first product starting in 2012, the year the company went public.
“Our effort to shift Facebook from News Feed first to Stories first hasn’t been as smooth as I hoped,” Facebook CEO Mark Zuckerberg said during a call with Wall Street analysts. “We don’t make as much money from them yet as we do from feed ads.”
Facebook is evolving from the News Feed, the main stream of content on the social network, to Stories, full-screen vertical videos that disappear in 24 hours. The video style was wholly inspired by Snapchat, the first social media company to see the appeal of ephemeral messaging and the videos that take up a phone’s screen in portrait mode.
“I just think that this is the future,” Zuckerberg said. “People want to share in ways that don’t stick around permanently.” He added that building up the Stories format “will take some time, and our revenue growth will be slow during that period,” like it was during the transition to mobile.
Facebook is so in love with the Stories format that it is available on all its properties — Instagram, WhatsApp, Messenger and the main social network. But the more time people watch Stories, the less time they spend in the main feeds on Facebook and Instagram, where ads are more valuable.
Stories ads cost $4 for 1,000 views, while ads in the feed cost about $5 for 1,000 views, said Aaron Goldman, CMO of 4C Insights, a social media marketing technology platform.
“Stories are playing an increasingly important role for Facebook advertisers,” Goldman said. “The format is already proven on Instagram, but adoption is picking up on core Facebook.”
Facebook inserted Stories into its main app last year, and ads only started appearing there last month. Instagram Stories is better-established and has run ads since last year. There have been concerns that the style of sharing is not as popular on Facebook proper as it is on Instagram, which is a more direct competitor to Snapchat and fighting for dominance among young people.
Across its properties, Facebook sees 1 billion Stories a day, Zuckerberg said. Most of those are thanks to Instagram.
Brian Wieser, senior analyst at Pivotal, said Stories are growing at the expense of Facebook’s News Feed cash cow.
“There are real limits around how much money exists in the advertising economy, and advertisers can only allocate so much to Facebook and its properties,” he said.
Facebook is also investing in Watch, another video offering it hopes can be the future of advertising. Watch is for publishers and TV networks to run premium programming on Facebook and share in ad sales. That too has been slow to take off.
Watch is still “way behind YouTube,” Zuckerberg said, referring to the primary competitor of the service, which is owned by Google. Watch is growing, but Zuckerberg was vague about how much, saying only that it grew threefold in the past few months in the U.S.