Facebook warns costs will grow faster than sales

Facebook warns costs will grow faster than sales

“We’re building profits for the long-term,” Facebook founder and chief executive Mark Zuckerberg told analysts on Wednesday night. The warning came as Facebook reported a 79pc drop in fourth quarter profits to $ 64m (£41m), as expenses jumped during the quarter.

Since its $ 104bn flotation last May, the social networking site has been under intense 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 on Wednesday that the fourth quarter was the first in the company’s eight-year history when more of 1.06bn users logged on with mobile devices rather than traditional PCs.

Despite the drop in profits, investors took some encouragement as Facebook’s latest results showed a jump in the share of its advertising revenue coming from mobile. Mobile accounted for 23pc of the company’s $ 1.33bn in advertising revenues in the final three months of the year. That is up from 13pc in the third quarter.

Anxiety over whether Facebook would be able to squeeze advertising revenues from the smaller screens on mobile devices hung over the company’s disastrous flotation last May. After reaching a record low in September, Facebook shares have surged more than 50pc on signs Mr Zuckerberg is beginning to build a mobile business.

However, they fell 5pc in volatile, after-hours trading on Wednesday night as the fourth-quarter results reminded Wall Street that growing mobile revenues, as well as new products, come at a cost. Operating margins fell to 33pc in the quarter from 48pc in the final three months of 2011.

Earlier this month, Facebook made its first move into search – an area dominated by rival Google – by allowing users to search content on Facebook according to four categories. Mr Zuckerberg, who founded the company in 2004 while he was a student at Harvard University, said last night that he expects the search product to grow but that it is unlikely to help drive revenues this year.

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