The Disappointing Growth of Facebook's Ad Business

This chart shows advertising revenue growth of Facebook and Google prior to and immediately after going public.

Yesterday after market close, Facebook reported its quarterly results for the first time as a public company. Facebook modestly beat Wall Street expectations with revenue of $1.18 billion and non-GAAP net income of $295 million. The social network now has 955 million monthly active users and 543 million mobile users.

Facebook’s advertising business, the company’s main revenue source, generated $992 million in revenue, a 28% increase over last year’s second quarter. What sounds like solid growth, can be considered mildly disappointing given Facebook’s valuation. After all, Google’s ad business grew 21% in the past quarter coming from a much larger base.

But how did Google do eight years ago, when it had just gone public itself?
In the third quarter of 2004 (Google’s IPO quarter) the search giant posted ad revenue of $796 million, a number not too far from Facebook’s $992 million. Google’s ad business however, grew 109% in that quarter, dwarfing Facebook’s 28% growth. When comparing ad revenue growth of Facebook and Google prior to and immediately after going public the result is clear: if Facebook doesn’t find a way to re-accelerate its advertising growth, the company will have a hard time justifying its price tag, let alone catching up with Google.