Facebook signals sharp increase in costs
The Silicon Valley company expects expenses to rise 50 per cent this year as it accelerates the hiring of engineers and ploughs money into new ventures such as search.
"We're building profits for the long term," the Facebook founder and chief executive, Mark Zuckerberg, told analysts.
Facebook reported a 79 per cent drop in fourth-quarter profits to $US64 million ($61.6 million), as expenses jumped.
Since its $US104 billion listing last May, the social networking site has been under pressure to grow its mobile advertising business as more and more users access their Facebook pages on handheld devices rather than desktop computers.
It is a need that is unlikely to relent as Facebook said the fourth quarter was the first in the company's eight-year history when more of its 1.06 billion users logged on with mobile devices rather than PCs.
Investors were encouraged as Facebook showed a jump in the share of its ad revenue coming from mobile. Mobile accounted for 23 per cent of the company's $US1.33 billion in advertising revenues in the final three months of the year, up from 13 per cent in the third quarter.
"The trend clearly seems to be that users are adopting mobile and that Facebook and advertisers like the results they are getting," said Brian Blau, an analyst at Gartner.
Anxiety over whether Facebook would be able to squeeze ad revenues from the smaller screens on mobile devices hung over the company's disastrous listing last May. After reaching a record low in September, the shares have surged more than 50 per cent on signs Mr Zuckerberg is beginning to build a mobile business.
However, they fell 5 per cent in after-hours trading on Wednesday night as the results reminded Wall Street that growing mobile revenues, as well as new products, come at a cost. Operating margins fell to 33 per cent in the quarter from 48 per cent in the final three months of 2011.
This month Facebook made its first move into search, an area dominated by Google, by allowing users to search content on Facebook according to four categories.
Mr Zuckerberg said he expected the search product to grow but it was unlikely to help drive revenues this year.
Frequently Asked Questions about this Article…
Facebook told Wall Street it expects expenses to rise faster than sales as it accelerates hiring of engineers and invests in new ventures such as search, which the company says will build long-term profits but push up near-term costs.
The company expects expenses to rise about 50% this year, driven by faster hiring of engineers and increased investment in new products and initiatives like its move into search.
Facebook reported a 79% drop in fourth-quarter profits to US$64 million, with operating margins falling to 33% from 48% in the same period a year earlier as expenses jumped.
Mobile advertising is increasingly important: mobile accounted for 23% of Facebook's US$1.33 billion in advertising revenue in the final three months of the year, up from 13% in the prior quarter, reflecting more users accessing Facebook on mobile devices.
Yes — for the first time in its eight-year history more of Facebook's 1.06 billion users logged on with mobile devices than PCs. That shift matters because it forces Facebook to monetise smaller mobile screens, a key driver of product and ad strategy (and related costs).
Investors were encouraged by rising mobile ad revenue share and signs of a mobile business, which helped shares recover from earlier lows. However, Facebook shares fell about 5% in after‑hours trading as the results highlighted rising costs and squeezed margins.
Facebook rolled out a first move into search, letting users search content on the site by four categories. CEO Mark Zuckerberg said he expects the search product to grow, but he indicated it is unlikely to drive significant revenue this year.
Based on the company's reporting, watch expense growth (Facebook flagged a 50% rise), mobile advertising revenue share (it rose to 23% of ad revenue), quarterly profits and operating margins (they fell to 33%), and progress on new products such as search — all of which influence near-term profitability and long-term growth.
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