Facebook CEO Mark Zuckerberg Spends Big Even With Growth Slowing
Mark Zuckerberg is spending faster to chase opportunities in messaging and mobile advertising as sales growth slows at Facebook Inc.’s main social-networking service.
The company said on Wednesday that spending will jump 55 percent to 70 percent in 2015, narrower than the 50 percent to 75 percent range that it projected in October. Zuckerberg has said Facebook is investing in messaging, advertising across the Web, hiring and new technologies such as artificial intelligence.
Total expenses in the fourth quarter soared 87 percent to $2.72 billion. That hit profit, with the Menlo Park, California-based company reporting an operating margin of 29 percent, compared with 44 percent a year earlier. Sales totaled $3.85 billion, up 49 percent and slower than the 63 percent growth in the fourth quarter of 2013.
The spending resembles that of other Web companies including Google Inc. and Amazon.com Inc., which are also investing in ventures from drones to cloud computing that are outside of their core businesses. Facebook has paid billions to acquire companies including mobile-messaging service WhatsApp Inc. and virtual-reality company Oculus VR Inc. to attract users as Internet trends change rapidly, yet revenue from the two platforms remains negligible.
“Facebook is going after some very big opportunities and if they want to compete with the likes of Google and Amazon and Apple they’re going to have to spend for growth.” said Neil Doshi, an analyst at CRT Capital Group, adding that questions about the spending are “warranted.”
Facebook shares slipped in extended trading, after closing at $76.24 in New York. The stock climbed 43 percent last year, compared with an 11 percent gain in the Standard & Poor’s 500 Index.
Facebook’s Evolution
Zuckerberg said in a conference call Wednesday that building new products and profiting off them will take time. A transition may be as complicated as Facebook’s switch from making money off desktop ads to mobile ads, he said, with the company creating a mobile-ad business from nearly scratch after going public in 2012.
“Doing this is going to take a lot of effort over the coming years, and Facebook is going to have to evolve,” the chief executive officer said.
Net Income
Net income rose to $701 million in the fourth quarter, up 34 percent from $523 million a year ago. Profit excluding some items was 54 cents a share, compared with 48 cents projected on average by analysts.
Facebook’s users totaled 1.39 billion at the end of the quarter, up 3 percent from 1.35 billion in the prior period. The company is making more money from each member, with average revenue per user climbing to $2.81 in the fourth quarter, up 31 percent from a year earlier.
Expenses were driven in part by research and development, which made up 29 percent of revenue, while sales and marketing expenses accounted for 16 percent.
Facebook Chief Financial Officer David Wehner defended the spending on the conference call, saying the company is coming “from a position of strength.”
Even with the slowdown, Facebook has growth avenues to exploit, said James Cakmak, an analyst at Monness, Crespi, Hardt & Co.
“You may be seeing some deceleration on the core platform but you’re virtually in day one when it comes to everything else,” he said.
Mobile Fuel
Revenue in the quarter was driven by mobile ads, which accounted for 69 percent of total sales, up from 66 percent in the third quarter. The company is now increasingly selling promotions on mobile applications and sites across the Web, complete with new technology to track individuals’ responses to the ads no matter what device they’re using.
For all of 2014, Facebook’s revenue totaled $12.5 billion, the first time the company’s annual sales reached the eleven-digit mark.
Currency swings bit into results. Excluding the impact of foreign exchange rates, revenue would have increased by 53 percent, Facebook said.
While the dollar’s climb is reducing profits at U.S. companies from Procter & Gamble Co. to Pfizer Inc. and Microsoft Corp., more than 77 percent of Standard & Poor’s 500 Index members have still beaten analysts’ estimates so far this earnings season, according to data compiled by Bloomberg.
International ad revenue excluding the U.S. and Canada totaled $1.89 billion, up 48 percent from $1.28 billion a year ago. Sales in the U.S. and Canada were $1.71 billion, up 60 percent from $1.07 billion over the same period.
10 Year
Zuckerberg last year laid out how his company is going to make money over time. That included building out the ad business over the next three years, focusing especially on video. Within five years, the company would have figured out how to make large businesses out of photo-sharing app Instagram and messaging apps WhatsApp and Facebook Messenger. In 10 years, Zuckerberg has said he wants to have connected the remainder of the world’s population to the Internet, with the company likely focused on artificial intelligence and virtual reality.
In December, Instagram said it has 300 million users, more than that of Twitter Inc. Earlier this month, WhatsApp said it has 700 million, closer to the 1 billion mark that Zuckerberg has said will be the trigger to start trying to profit off of it.
Existing Users
For now, Facebook is expanding the ways it can make money off of Facebook users, no matter where on the Web they are. The company has an ad network called Atlas that lets marketers get data on how often individuals saw their ads and what gadget they used, while an audience network lets them serve ads to mobile apps other than Facebook. The company has been heavily selling its video advertising, after improving the technology and acquiring startup LiveRail to help it serve video ads outside the social network.
The company said Wednesday that users now view videos 3 billion times daily, triple the 1 billion figure disclosed in June.
“The fact that we have this much consumer video on Facebook means we have an opportunity to grow our ad business and that’s exciting for marketers,” Sheryl Sandberg, Facebook’s chief operating officer, said on the call.
To contact the reporter on this story: Sarah Frier in San Francisco at sfrier1@bloomberg.net
The company said on Wednesday that spending will jump 55 percent to 70 percent in 2015, narrower than the 50 percent to 75 percent range that it projected in October. Zuckerberg has said Facebook is investing in messaging, advertising across the Web, hiring and new technologies such as artificial intelligence.
Total expenses in the fourth quarter soared 87 percent to $2.72 billion. That hit profit, with the Menlo Park, California-based company reporting an operating margin of 29 percent, compared with 44 percent a year earlier. Sales totaled $3.85 billion, up 49 percent and slower than the 63 percent growth in the fourth quarter of 2013.
The spending resembles that of other Web companies including Google Inc. and Amazon.com Inc., which are also investing in ventures from drones to cloud computing that are outside of their core businesses. Facebook has paid billions to acquire companies including mobile-messaging service WhatsApp Inc. and virtual-reality company Oculus VR Inc. to attract users as Internet trends change rapidly, yet revenue from the two platforms remains negligible.
“Facebook is going after some very big opportunities and if they want to compete with the likes of Google and Amazon and Apple they’re going to have to spend for growth.” said Neil Doshi, an analyst at CRT Capital Group, adding that questions about the spending are “warranted.”
Facebook shares slipped in extended trading, after closing at $76.24 in New York. The stock climbed 43 percent last year, compared with an 11 percent gain in the Standard & Poor’s 500 Index.
Facebook’s Evolution
Zuckerberg said in a conference call Wednesday that building new products and profiting off them will take time. A transition may be as complicated as Facebook’s switch from making money off desktop ads to mobile ads, he said, with the company creating a mobile-ad business from nearly scratch after going public in 2012.
“Doing this is going to take a lot of effort over the coming years, and Facebook is going to have to evolve,” the chief executive officer said.
Net Income
Net income rose to $701 million in the fourth quarter, up 34 percent from $523 million a year ago. Profit excluding some items was 54 cents a share, compared with 48 cents projected on average by analysts.
Facebook’s users totaled 1.39 billion at the end of the quarter, up 3 percent from 1.35 billion in the prior period. The company is making more money from each member, with average revenue per user climbing to $2.81 in the fourth quarter, up 31 percent from a year earlier.
Expenses were driven in part by research and development, which made up 29 percent of revenue, while sales and marketing expenses accounted for 16 percent.
Facebook Chief Financial Officer David Wehner defended the spending on the conference call, saying the company is coming “from a position of strength.”
Even with the slowdown, Facebook has growth avenues to exploit, said James Cakmak, an analyst at Monness, Crespi, Hardt & Co.
“You may be seeing some deceleration on the core platform but you’re virtually in day one when it comes to everything else,” he said.
Mobile Fuel
Revenue in the quarter was driven by mobile ads, which accounted for 69 percent of total sales, up from 66 percent in the third quarter. The company is now increasingly selling promotions on mobile applications and sites across the Web, complete with new technology to track individuals’ responses to the ads no matter what device they’re using.
For all of 2014, Facebook’s revenue totaled $12.5 billion, the first time the company’s annual sales reached the eleven-digit mark.
Currency swings bit into results. Excluding the impact of foreign exchange rates, revenue would have increased by 53 percent, Facebook said.
While the dollar’s climb is reducing profits at U.S. companies from Procter & Gamble Co. to Pfizer Inc. and Microsoft Corp., more than 77 percent of Standard & Poor’s 500 Index members have still beaten analysts’ estimates so far this earnings season, according to data compiled by Bloomberg.
International ad revenue excluding the U.S. and Canada totaled $1.89 billion, up 48 percent from $1.28 billion a year ago. Sales in the U.S. and Canada were $1.71 billion, up 60 percent from $1.07 billion over the same period.
10 Year
Zuckerberg last year laid out how his company is going to make money over time. That included building out the ad business over the next three years, focusing especially on video. Within five years, the company would have figured out how to make large businesses out of photo-sharing app Instagram and messaging apps WhatsApp and Facebook Messenger. In 10 years, Zuckerberg has said he wants to have connected the remainder of the world’s population to the Internet, with the company likely focused on artificial intelligence and virtual reality.
In December, Instagram said it has 300 million users, more than that of Twitter Inc. Earlier this month, WhatsApp said it has 700 million, closer to the 1 billion mark that Zuckerberg has said will be the trigger to start trying to profit off of it.
Existing Users
For now, Facebook is expanding the ways it can make money off of Facebook users, no matter where on the Web they are. The company has an ad network called Atlas that lets marketers get data on how often individuals saw their ads and what gadget they used, while an audience network lets them serve ads to mobile apps other than Facebook. The company has been heavily selling its video advertising, after improving the technology and acquiring startup LiveRail to help it serve video ads outside the social network.
The company said Wednesday that users now view videos 3 billion times daily, triple the 1 billion figure disclosed in June.
“The fact that we have this much consumer video on Facebook means we have an opportunity to grow our ad business and that’s exciting for marketers,” Sheryl Sandberg, Facebook’s chief operating officer, said on the call.
To contact the reporter on this story: Sarah Frier in San Francisco at sfrier1@bloomberg.net
Comments
Post a Comment