Facebook (NASDAQ:FB) management has a history of erring on the side of caution when it comes to its financial outlook. CFO Dave Wehner warned of a deceleration in revenue growth during the company's first-quarter earnings call, and then the company reported an acceleration in growth during the second quarter. It's no surprise, then, that when Wehner said during the company's second-quarter earnings call that he still expects a deceleration in revenue growth in the back half of the year and into next year, analysts were curious if anything had actually changed.

To be sure, Facebook has already seen its revenue growth rate fall from the mid-to-high 40% range to the mid-to-high 20% range over the last year and a half. Facebook was facing various challenges during that period, including data privacy and election scandals, ad load saturation in news feed, the introduction of regulations including the EU's General Data Protection Regulation (GDPR), and the shift in time spent to Stories products that it had barely started monetizing.

Practically all of that is in the rearview mirror at this point, and Facebook should at the very least be able to maintain its growth. So why is Wehner so cautious about the future?

The Facebook like symbol at the entrance to Facebook's campus.

Image source: Facebook.

Wehner's three reasons

Wehner's outlook is predicated on the idea that Facebook will face ad-targeting headwinds. The company has some of the best targeting capabilities of anyone in digital advertising thanks to its troves of user data. But Wehner sees three reasons why Facebook faces challenges to improving its ad targeting:

  • Increased global regulation surrounding data protection, like GDPR in Europe
  • Changes in privacy policies on Android and iOS
  • Facebook's own privacy-focused product changes

The first excuse doesn't quite add up to much. GDPR went into effect last May and Facebook said it took steps to make its products GDPR-compliant not just in Europe, but throughout the world. Unless Wehner is worried other regulatory bodies could be more restrictive, Facebook doesn't have much to worry about at this point.

That said, Wehner provides a couple of noteworthy points.

Apple (NASDAQ:AAPL) has notably taken steps to improve data privacy on its devices. It introduced a system to further restrict third parties' abilities to track users around the web when using the Safari browser -- something Facebook relies on for ad-targeting data. Apple plans to turn the feature on by default later this year, but it's admitted that wide adoption of the technology could have negative consequences, like the inability for marketers to track whether their ads are converting in real time. There's a chance Apple won't have as big of an impact as Wehner is planning for.

What's more, the majority of Facebook users are on Android, which is much more likely to side with Facebook on what's appropriate and what's not when it comes to data privacy. Android's parent company, Google, the Alphabet company, generates the vast majority of its revenue from advertising.

With regards to Facebook's own privacy-focused product changes, that's something completely within the control of Facebook. Ultimately, CEO Mark Zuckerberg and co. believe it's what's best for the long-term health of Facebook as a company. It may sacrifice ad-targeting data, but it should result in greater engagement that Facebook can monetize in other ways. In the end, that creates revenue growth.

A tougher comparable period?

Wehner later added that the company is facing a tougher comparable period in the fourth quarter. Despite slower year-over-year revenue growth in the fourth quarter compared to the rest of the year, Wehner cites product optimizations that allowed Facebook to produce better-than-expected results that quarter. He gave the same reason for the company's outperformance in the second quarter.

But those improvements ought to flow through to continued year-over-year revenue growth until the company laps those improvements. Basically, one quarter of outsized product optimizations ought to provide value for the next three quarters as well. Indeed, ad engagement in the Facebook feed has improved considerably over the first six months of the year, and there's no reason to suspect it will suddenly fall off again in the third quarter.

It's tough to comprehend Wehner's warnings, and the market and top analysts don't appear too worried about an abrupt deceleration in revenue growth going forward. While new privacy standards from Apple, Google, and even Facebook itself could have a negative impact, it seems likely to be much more muted than Wehner is leading on. Even with the privacy headwinds, investors need to consider that Facebook has, among other things, opportunities to rapidly grow revenue from Stories or Watch or increase its stake in e-commerce on its platforms.