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 The hefty spending plans exposed the first signs of stress in the
rock-solid support that investors have accorded the social
networking company over the past year.
With Facebook's mobile advertising business delivering repeated
quarters of breakneck revenue growth, the company has faced little
pushback from investors on pricey, multi-billion dollar acquisitions
such as WhatsApp and Oculus. Shares of Facebook reached an all-time
high of $81.16 on Tuesday, before the company reported its
third-quarter results.
Chief Financial Officer Dave Wehner told analysts on a conference
call that the social network is preparing for a 55 percent to 75
percent spike in expenses next year, when the world's largest social
network intends to invest in Whatsapp, Oculus and other products
that have yet to show a profit.
That's a big change from the company's current spending patterns,
with costs and expenses in the first nine months of 2013 up a
relatively modest 32 percent. Facebook declined to provide any
estimates for its expected pace of revenue growth in 2015, adding to
investor worries.
"Giving expense guidance without giving revenue guidance is
frustrating and spooking The Street," said BTIG analyst Richard
Greenfield.
"The multi-billion dollar question is what’s revenue growth going to
look like next year," he said.
Wehner forecast revenue growth of 40 percent to 47 percent in the
final quarter of 2014. That's down sharply from 59 percent in the
third quarter.
The financial forecasts came on the same day as Facebook revealed
hundreds of millions of dollars in losses from WhatsApp.
Facebook Chief Executive Mark Zuckerberg has told Wall Street he is
in no hurry to extract a payoff from the collection of acquired
products, stressing the importance of growing the number of users
first.
"For us products don’t get that interesting until they have about a
billion people using them," Zuckerberg said.
Shares of Facebook, up roughly 47 percent this year, slid nearly 9
percent to $73.80 in extended trading on Tuesday.
MOBILE SURGE
Facebook reported a better-than-expected 59 percent jump in
third-quarter revenue and a solid gain in its user base that's
already the world's largest social media community. The company is
considered a pioneer in mobile advertising, outshining rivals like
Twitter Inc, which are struggling to sustain user engagement and
growth.
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Google Inc, the world's No.1 Internet search engine, has seen its
advertising rates stuck in a multi-year decline as it adapts its
lucrative advertising business for the smartphones that consumers
increasingly favor. Mobile ads represented two-thirds of
Facebook's advertising revenue in the third quarter, and the company
said that the average price of its ads more than tripled
year-on-year.
"They continue to show that there is a lot of demand for their
product, both in terms of users wanting to spend time there and
advertisers wanting to spend money," said Ben Schachter an analyst
with Macquarie Research.
Facebook's total number of monthly users reached 1.35 billion in the
third quarter, with 64 percent of its users accessing the service
every day.
Facebook said revenue in the three months ended Sept. 30 totaled
$3.2 billion, up 59 percent from $2.02 billion in the year-ago
period. Analysts polled by Thomson Reuters I/B/E/S were looking for
revenue of $3.12 billion on average.
Net income increased to $806 million, or 30 cents a share in the
third quarter, compared to $425 million, or 17 cents a share in the
year-ago period. Excluding certain items, Facebook said it earned 43
cents a share.
Facebook also for the first time disclosed the financial performance
for WhatsApp, a mobile messaging app that the company acquired
earlier this month for $22 billion.
According to a filing with the Securities and Exchange Commission on
Tuesday, WhatsApp lost $232.5 million in the first six months of
2014, compared to a loss of $58.8 million in the first six months of
2013.
(Editing by Bernard Orr)
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