At Facebook, expenses take a bigger bite
Facebook (FB) earnings for the first quarter of 2015 were roughly in keeping with analyst expectations. But higher spending is keeping profits in check. The stock was down about 2.3 percent, or $2, to $82.60 in after-hours trading on Wednesday.
Revenue rose 41.6 percent year-over-year, hitting $3.54 billion. Average analyst estimates were for $3.56 billion. Net income was $512 million, down 20 percent from 2014's $642 million. Excluding certain costs and expenses, earnings per share of 42 cents came in slightly better than the average analyst estimate of 40 cents.
CEO Mark Zuckerberg in a statement called the quarter a "strong start to the year" and said, "We continue to focus on serving our community and connecting the world."
But trying to serve the world is expensive. Even as revenue was up almost 42 percent, expenses across the board climbed year-over-year by 82.9 percent, nearly twice the rate. The company has also grown so large that continuing significant growth is difficult.
Monthly active users reached 1.44 billion, a jump of 13 percent year-over-year. Mobile monthly active users were up 24 percent over last year to reach 1.25 billion. Further, Facebook figures the number of mobile-only monthly active users was 581 million. That suggests that 859 million use the social network strictly from the desktop.
As mobile-only users hit their stride, so did mobile ad revenue, which was 73 percent of the company's gross ad revenue in the first quarter. That represented growth of 59 percent. Total ad revenue of $3.32 billion was up 46 percent over the same time last year. Forty-nine percent of that revenue came from the U.S. and Canada. Average revenue per user in the U.S. was $8.32, compared to the worldwide average of $2.50.
Even as it continues to expand, Facebook faces some challenges. Mobile ads generally pay less than ads on desktop and laptop computers. With the company becoming ever more dependent on mobile ad revenue, it will need to find ways to increase the amounts it can make. One move has been the introduction of automatically run video ads. Still, Facebook needs to find better ways to monetize its customers outside of North America.
Rising expenses are also potentially troubling. As the company becomes larger, maintaining the growth that investors expect gets harder, which means more spending that further cuts into profits.