Facebook warns its torrid growth will slow 'meaningfully' next year

Facebook dives after-hours

Facebook reported quarterly earnings and revenue that beat analyst expectations on Wednesday, but CFO David Wehner said ad revenue growth rates would slow meaningfully in 2017.

Ad load — the ratio of ads to personal posts — has been an important factor in delivering strong growth in advertising revenue over the past two years but will taper off in the second half off 2017, Wehner told analysts on the company's earnings conference call. Ad revenue growth has averaged 50 percent over the past two years, he said.

Facebook is getting close to maxing out the number of ads it can cram into news feeds without damaging user experience. As a result, it won't be able to increase so-called ad load at the same rate next year.

Facebook will continue to invest in growing its user base and the amount of time those users spend on Facebook, Wehner said. Those are two other factors fueling ad revenue growth at the social media giant.

The company is developing a number of new ad products and enhancing existing ad products for both Facebook and Instagram, Wehner said. Those investments will enable Facebook to drive advertiser demand and growth next year, he added.

Ad revenue growth, user engagement and monthly active user growth are three things investors watch very closely, RBC Capital Markets analyst Mark Mahaney told CNBC.

Shares of the stock wavered after hours, briefly rising before dropping nearly 7 percent. JMP securities analyst Ron Josey said it was Wehner's warnings regarding ad load that drove the stock down.

Mark Zuckerberg, chief executive officer of Facebook Inc.
Chris Ratcliffe | Bloomberg | Getty Images

CEO Mark Zuckerberg and Wehner both warned that 2017 would be a year of aggressive investment.

"Hiring in engineering is going to be one of our top priorities going into 2017," Zuckerberg said.

The company will also spend money to build data centers next year, Wehner said.

The social media giant posted adjusted earnings of $1.09 per share on revenue of $7.01 billion, up from the comparable year-ago figure of $4.5 billion in revenue. Analysts had expected earnings of 97 cents per share, adjusted, on $6.92 billion in revenue, according to a Thomson Reuters consensus estimate.

Advertising revenue hit $6.82 billion, above the $6.71 billion estimated by StreetAccount.

Monthly active users — something analysts watch closely as a measure of user engagement — increased to 1.79 billion, showing that the social media giant has been able to keep users interested, despite rising competition from rival Snapchat. For the first time, more than 1 billion users were active on their phones every month.

Here are all the details on Facebook's earnings report.

— With reporting from CNBC's Anita Balakrishnan