Facebook warns of increased spending, shares fall

October 28
6:27 PM 2014

Facebook Inc warned on Tuesday of a dramatic increase in spending in 2015 and projected a slowdown in revenue growth this quarter, slicing a tenth off its market value.

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.

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.

"We're investing where we think there's a great opportunity for long term growth," Wehner said. "So we're investing in the people," as well as in existing and newly-acquired products, he said.

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.

Shares of Facebook, up roughly 47 percent this year, slid more than 10 percent to $72.65 in extended trading on Tuesday.

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.

"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 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.

WhatsApp does not currently show ads on its service and Facebook Chief Executive Mark Zuckerberg has said the company will not rush to monetize the service.

Macquarie's Schachter said investors understand that WhatsApp is a "long-term play," and that what's most important right now is for the app to continue to grow its base of users.

The world's No.1 online social network said its total number of monthly users reached 1.35 billion in the third quarter, with 864 million users accessing the service every day.

Facebook's 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.

Mobile ads represented 66 percent of Facebook's advertising revenue, up from 49 percent of ad revenue in the year-ago period.

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