Facebook 83% rise in expenditure hits profits

Facebook growth slows in Q1

23 APR 2015

Facebook saw Q1 revenue increase 42 per cent, totalling $3.54 billion but falling short of the $3.56 billion that analysts had predicted, as costs and expenses went up by 83 per cent, partly due to its heavy investments in apps.

This was the slowest growth in quarterly revenue in two years and the company missed expectations for the first time in 11 quarters.

“Similar to last quarter, stock-based compensation and amortisation expenses related to the WhatsApp acquisition contributed significantly to the year-over-year growth in GAAP expenses,” explained CFO David M. Wehner, while non-GAAP expense growth was primarily driven by increases in headcount-related costs, cost of revenue, and marketing expenses.

Apart from WhatsApp, which was acquired last year for $22 billion, the company has also been spending on Instagram, and setting up standalone apps such as Messenger and Groups, and most recently a new Android app called Hello that lets users “search for people and businesses on Facebook and call them with just one tap.”

Expenses also include data centres, the Internet.org initiative and work in the virtual reality space through Oculus Rift.

Research and development spending more than doubled to over $1 billion and the number of employees went up by 48 per cent to 10,082, also in part due to Facebook’s acquisitions.

Reuters quoted Macquarie Research analyst Ben Schachter as saying that “the trends are all going in the right direction. The cost rise is one thing that can derail this story. The question is, can they keep costs under control and what will be the new revenue streams around video, Instagram and virtual reality around Oculus?”

The company said its expects expenses to go up by about 55 percent to 65 percent this year, compared to a previous forecast of 55 percent to 70 percent.

It also said that revenue would have been 49 per cent – or $190 million – higher had the strengthening of the US dollar in the past year not had an unfavourable impact, as Facebook generates more than half its revenue overseas.

CEO Mark Zuckerberg described the results as a “strong start to the year” which “show that we’re making progress in our mission to connect the world and we’re executing well against our priorities.”

Facebook’s monthly active users have hit 1.44 billion as of March 31, 2015, an annual increase of 13 per cent, while mobile monthly active users were 1.25 billion as of March 31, 2015, an increase of 24 per cent.

Ads
Revenue from advertising was $3.32 billion, a 46 per cent increase from the same quarter last year.

The average price per ad increased 285 per cent while total ad impressions declined 62 per cent.

Mobile advertising revenue grew 82 per cent, representing approximately 73 per cent of total advertising revenue for the first quarter of 2015, up from approximately 59 per cent of advertising revenue in the first quarter of 2014.

“As consumers shift to mobile, businesses are following, and we’re focusing on helping them take advantage of this opportunity to use mobile to build their businesses,” said COO Sheryl K. Sandberg, adding that the company wants to focus on innovation in its ads business.

“We expect more marketers to put mobile video at the heart of their campaigns in the future and we’re well-positioned to drive this shift,” added Zuckerberg.

Apps
“Across the Facebook family of apps, our efforts have a lot of momentum,” said Zuckerberg on an earnings call, adding that “we want to continue developing new and better tools to facilitate this expression.”

WhatsApp hit 800 million monthly active users recently, while Groups has 700 million. Messenger follows with 600 million and Instagram has 300 million.

Back in October Zuckerberg had admitted there were no plans to monetise WhatsApp or Instagram aggressively in the next couple of years, focusing instead on connecting more people.

Its new app, Hello, will show users “info about who’s calling you, even if you don’t have that number saved in your phone. You will only see info that people have already shared with you on Facebook,” the company said in a blog post.

It also lets users search for people and businesses on Facebook and call them with just one tap.

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Saleha Riaz

Saleha joined Mobile World Live in October 2014 as a reporter and works across all e-newsletters - creating content, writing blogs and reports as well as conducting feature interviews...More

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