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Thursday, January 31, 2013

Facebook\'s Solid Results Are Greeted Cautiously

Facebook’s Solid Results Are Greeted Cautiously

SAN FRANCISCO â€" Facebook made a lot of money in the last quarter. It also spent a lot. And that made investors once again cautious about the company.

Mark Zuckerberg, Facebook’s chief executive, told analysts the company’s profit might not grow as fast as investors would like.

Employees at the Facebook headquarters in Menlo Park, Calif. The company’s fourth-quarter revenue was up 40 percent, helped by advertising aimed at its users.

After an eight-month roller coaster ride on the public markets, Facebook did well in the fourth quarter of 2012 by aggressively ramping up advertisements aimed at its users, including on mobile phones. In its financial report on Wednesday, it beat expectations, increasing revenue by a handsome 40 percent from the same period a year ago.

But its expenses also climbed rapidly as the company hired engineers and built data centers, causing profit to dip from the last quarter in 2011. With that, Wall Street lost some enthusiasm.

Facebook shares, which had closed at $31.24 on Wednesday, fell more than 3 percent in after-hours trading after the results were released.

In recent weeks, the stock had recovered much of the ground it lost in the eight months since its introduction last year.

“The quarter was a little like a cold shower after you’ve been out all night â€" it’s something that makes you sober up very quickly,” said Jordan Rohan, an analyst at Stifel Nicolaus, adding that the numbers made it clear that Facebook intended to spend more “to go after the opportunities before them.”

In the conference call with analysts after the earnings report, Mark Zuckerberg, chief executive of Facebook, cautioned Wall Street that profit might not grow as fast as investors would like. That, he said, was because Facebook would continue to spend money hiring people and building products for the future, like the new search tool it introduced this month. “It’s important to start planting seeds,” he said.

The most closely watched part of the earnings report was how much money the company brought in from its mobile users; most people log in to the site using their cellphones. Facebook said advertising on the mobile newsfeed accounted for 23 percent of its advertising revenue, up from 14 percent in the third quarter but slightly lower than some analysts had forecast.

Mr. Zuckerberg predicted that the company would eventually make more money on every minute spent on the Facebook mobile app than on the desktop computer.

Facebook reported fourth-quarter revenue of $1.59 billion, compared with $1.52 billion predicted by analysts surveyed by Bloomberg. The company earned $64 million in net income, or 3 cents a share. Excluding certain items, Facebook said it had a net income of $426 million in the fourth quarter, or 17 cents a share, beating analysts’ expectations by 2 cents.

Facebook’s biggest, long-term challenge remains how to profit from the enormous piles of personal data of its one billion users without alienating them or inviting the wrath of government regulators in the United States and abroad. The company reported on Wednesday that it had 1.06 billion active users â€" those who log in at least once a month.

Secondarily, it must figure out a way to profit abroad. Most of its revenue still comes from North America and to a lesser extent Europe.

Despite the stock’s decline after the earnings report, it is still much recovered since last year’s slump. It opened at $38 a share last May, but shortly after that, the stock plummeted as Wall Street soured on its ability to increase profit as fast as investors wanted. Shares sank to half the public offering price last September.

But the company focused on its advertising business and released a series of new products aimed at taking on some of its biggest rivals, including Google and Apple. Mr. Zuckerberg took the initiative to reassure investors it had their interests at heart. The improvement in the share price in recent weeks suggests that the company’s charm offensive is paying off.

In the last few months, Facebook has floated several trial balloons aimed at pleasing Wall Street and, in particular, convincing investors that it can thrive in the mobile era.

It offered marketers more refined targeting options, including Facebook Exchange, which allows companies to track users as they are browsing and shopping for products around the Web and lets companies show advertisements for those products when the users log back on to Facebook.

Before Christmas last year, in a bid to step into territory dominated by Amazon, it introduced the Gifts application, which lets users buy goods and services for their Facebook friends, and in turn, share with the company an extremely valuable piece of data: their credit card numbers. The company made clear in the conference call on Wednesday that this would not be an immediate moneymaker.

A version of this article appeared in print on January 31, 2013, on page B1 of the New York edition with the headline: Facebook’s Solid Results Are Greeted Cautiously.