Facebook's earnings are on fire, but so are costs
Shares of Facebook (FB) slumped more than 2 percent in after-market trading on Wednesday even after the pioneering social network reported fourth-quarter earnings that far exceeded Wall Street analysts' expectations.
The reaction appears related mostly to the 87 percent increase in expenses in the quarter, which overshadowed the 34 percent gain in net income. User growth also may have disappointed investors.
Even so, Facebook's "disappointing" results would please many companies.
"I thought it was a great quarter," said Timothy Ghriskey, who helps manage $1.5 billion at Solaris Asset Management, including Facebook shares. "Strong earnings, strong revenue. The ad revenue number was really nice, above expectations. "
Net income at the Menlo Park, California, company jumped 34 percent to $701 million, or 25 cents per share, compared with $523 million, or 2o cents per share. Sales rose 49 percent to $3.85 billion. These results beat the average Wall Street analyst forecasts of 49 cents per share profit on revenue of $3.77 billion.
Under CEO Mark Zuckerberg, Facebook has become by the far the preeminent social network, casting a shadow over rivals such as Twitter (TWTR). Daily active users rose 18 percent on a year-over-year basis, to 890 million on average for December 2014. That's more than triple Twitter's 284 million active users (and unlike Facebook, Twitter isn't profitable).
That fourth-quarter user figure is a gain from the 864 million users Facebook reported in quarter ending in September. However, it was just a 3 percent increase quarter-over-quarter, and many investors expected more.
"We got a lot done in 2014," Zuckerberg said in a statement. "Our community continues to grow and we're making progress towards connecting the world."
Indeed, ad revenue surged 53 percent to $3.59 billion, indicating that Facebook is gaining market share at the expense of its rivals. Excluding the effect of foreign currency exchange, the gain would have been 58 percent.
In previous quarters, many analysts had faulted Zuckerberg for what they considered his lack of a mobile strategy, a key point on Wall Street. Those concerns have been put to rest by the company's recent earnings. Mobile revenue accounted for 69 percent of ad revenue in the fourth quarter. A year earlier, mobile was 53 percent of ad revenue.
"The investments we have made have paid off," said Chief Operating Officer Cheryl Sandberg in an interview with CNBC. "We have the strongest mobile product out there."
Facebook's results come a day after Apple (AAPL) reported a blowout quarter that sent its shares shares soaring 5.6 percent on Wednesday, a big down for stocks overall.