Facebook Slides After Heavy Spend Prediction

Tom Jowitt is a leading British tech freelance and long standing contributor to TechWeek Europe

Facebook records more stunning results, but Wall Street takes fright at prediction of heavy spending

Facebook’s reign as the darling of Wall Street could be about to end, after the social networking giant posted its latest financial results.

The third quarter results represented another strong showing thanks in part to solid earnings from mobile advertising once again. But a prediction of heavier spending and more expenses going forward prompted a share price fall.

Strong Growth

Facebook has been pleasing Wall Street with its strong financial performance for a while. And there was no change in the latest quarter, as Facebook once again proved itself to be one of the star performers within the IT market.

For the quarter ending 30 September, Facebook’s profit rose a hugely impressive 90 percent, after it posted a net profit of $806m (£499m) or 30 cents (£0.18) a share, up from $425m (£264m) or 17 cents (£0.10) a share in the same year-ago quarter.

Sales likewise rose 59 percent to $3.2bn (£2bn) from $2bn (£1.3bn) a year earlier.

Zuckerberg Fa$ebook Facebook“This has been a good quarter with strong results,” said Mark Zuckerberg, Facebook founder and CEO. “We continue to focus on serving our community well and continue to invest in connecting the world over the next decade.”

Once again, mobile advertising proved to be a strong performer for the company, after it posted a mobile ad revenue of $1.95bn (£1.2bn). To put that figure into context, that £1.2bn is 66 percent of Facebook’s total ad revenue for the quarter. And it should be noted that this is up from 62 percent in the second quarter and 59 percent in the first three months of the year. A far cry from when research questioned the value of advertising on Facebook.

Facebook earlier this year introduced a mobile advertising network, called the Facebook Audience Network. That new service distributes ads across a network of mobile applications, which is opening up a lucrative new source of revenue for the company.

The company has also previously faced claims that Facebook users were abandoning the site due to ‘Facebook fatigue’, whilst some critics said that teenagers think Facebook is no longer cool and are therefore jumping ship to rival social networks like Tumblr. But the latest usage figures seems to rebuff these concerns.

Facebook said that its daily active users (DAUs) were 864 million on average for September 2014, an increase of 19 percent year-over-year. Mobile DAUs meanwhile were 703 million on average, an increase of 39 percent year-over-year. Monthly active users (MAUs) were 1.35 billion as of 30 September, an increase of 14 percent year-over-year. Mobile MAUs were 1.12 billion, an increase of 29 percent year-over-year.

All of this has meant that Facebook has been the Wall Street darling for a while now. Indeed, its share price reached an all-time high of $81.16 (£50.24) on Tuesday before the results came out. That’s more than double its $38 (£23.52) initial public offering price in 2012, a price that some felt was overvalued at the time.

Heavy Spending

However, the Facebook management team cast something of a dampener on the mood, when it warned on a dramatic increase in spending in 2015 and projected a slowdown in revenue growth this quarter.

CFO Dave Wehner warned that Facebook is preparing for a 55 percent to 75 percent spike in expenses next year, as it invests heavily in WhatsApp, Oculus and other products yet to show a profit.

Shares in the company fell 6.21 percent to $75.75 (£47) on Nasdaq.

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