Facebook signals sharp increase in costs

FACEBOOK has warned Wall Street that costs will grow faster than sales this year, as the social networking site battles for a larger slice of the mobile advertising market.

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.