Facebook profits fail to meet Wall St's high expectations

Shares fall after the social network warns investors that costs will grow as it builds mobile business

LAST UPDATED AT 10:09 ON Thu 31 Jan 2013

FACEBOOK shares fell six per cent overnight after it warned Wall Street that its costs will grow faster than sales this year.

The social network's revenue grew by 40 per cent to $1.59bn in the final three months of last year, increasing overall income from $3.7bn to $5.1bn in 2012.

The holiday season and an advertising drive during America's presidential election was said to have boosted profits but the results did not meet Wall Street's "unreasonably high" expectations, Reuters reports.

Arvind Bhatia of analysts Sterne, Agee & Leach said "the stock was set up for disappointment". Subsequently shares in the company fell more than 10 per cent during after-hours trading but clawed back six per cent to $29.98.

Facebook also ratcheted down Wall Street's hopes for its performance in 2013, warning costs will grow faster than sales this year as it invests in mobile advertising.

"We aren't operating to maximise our profit this year but we're doing what we think will build the best service and business over the long term," the company's founder and CEO Mark Zuckerberg said.

David Ebersman, Facebook's chief financial officer, told the Wall Street Journal they were "just getting started" in developing their mobile business.

But the paper points out there are questions over whether Facebook users will tire of adverts on smart phones. "One question is how far can they go without hurting user experiences," Colin Kinsella, CEO of ad agency Digitas North America, said.

The sharp fall in shares comes weeks after users and analysts expressed disappointment in Facebook's 'Graph Search', a search facility that allows users to find people, photos and places. As the Financial Times says, the new tool will be keenly watched by advertisers over the next year to see if it reaps dividends. · 

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