Facebook Inc : Facebook Net Down 79% on Higher Costs
01/30/2013| 05:05pm US/Eastern
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Facebook Inc. (FB) posted a fourth-quarter earnings report Wednesday that bolstered some confidence in the social network's future, even as the results also included a sharp drop in profitability.
Menlo Park, Calif.-based Facebook said profits shrank 79% due to higher costs. But the company continues to see an increasing rate of revenue growth, including a key bump in revenue derived from mobile devices.
Facebook's mobile performance "was a bit ahead of our expectations," said Stifel Nicolaus analyst Jordan Rohan.
The company said 23% of its advertising revenue, or about $306 million, was from mobile devices. That compares to about 14% of advertising revenue in the prior period.
Many investors are focused on Facebook's ability to pull in more revenue via mobile devices, where the company's daily audience has now eclipsed that on traditional computers.
Facebook said Wednesday it had 680 million monthly mobile users as of the end of the fourth quarter, compared to 604 million in the prior period.
During a conference call with analysts Facebook Chief Executive Mark Zuckerberg sought to underline the company's progress. "There's no argument, Facebook is a mobile company," he said.
Mr. Zuckerberg also sought to temper expectations for Facebook's profitability, as it continues to invest heavily in areas like hiring. The CEO said expenses at Facebook will continue to outpace revenue this year.
Shares of Facebook fell more than 3% in late trading following the earnings report to $30.55. As of the market's close, the stock had been up more than 40% in the past three months.
Arvind Bhatia, an analyst with Sterne Agee, said some Wall Street estimates for Facebook's mobile performance were too lofty. Mr. Bhatia said he had anticipated Facebook would post about $275 million in mobile revenue for the quarter, or about $30 million less than the actual reported figure.
Overall advertising revenue rose 41% to $1.33 billion in the quarter, Facebook said. That compares to 36% growth in the prior period.
"We are still very bullish on the company," Mr. Bhatia said.
Heavy investments led to total costs and expenses rising 82% to $1.06 billion, Facebook said. Excluding costs related to share-based compensation and associated taxes, costs increased 67%.
The company said total employee count jumped 44% in the quarter, to slightly more than 4,600.
As that hiring pace continues alongside other investment initiatives, Facebook Chief Financial Officer David Ebersman said during the call with analysts that total expenses should increase about 50% this year.
While Facebook's mobile progress pleased analysts, not all of the company's recent business initiatives have flourished.
Facebook said total revenue from both its Gifts e-commerce service and from fees paid by users to make their posts more visible on the site amounted to less than $5 million in the quarter.
Facebook unveiled its Gifts service in September and made its promoted-posts feature available in the U.S. at roughly the same time. Mr. Ebersman said revenue from the services will likely remain very small this year.
Overall, Facebook posted a fourth-quarter profit of $64 million, or three cents a share, down from $302 million, or 14 cents a share, in the same period a year earlier.
Excluding stock-based compensation and other items, earnings were 17 cents a share. Total revenue was $1.59 billion, up 40%.
Analysts polled by Thomson Reuters had expected adjusted earnings of 15 cents a share and revenue of $1.53 billion.
The company said total monthly active users grew 25% by the end of the fourth quarter compared to a year earlier, to 1.06 billion. Average daily active users rose 28% in December to 618 million.
"The issue with Facebook is not the earnings today, it's do they have the platform to remain a pivotal player in three to five years," Mr. Rohan said. "Everything appears to be on track."
Write to Ben Fox Rubin at ben.rubin@dowjones.com
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