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 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 - 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.
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 1 billion users without alienating them or inviting the wrath of government regulators in the United States and abroad. The company reported Wednesday that it had 1.06 billion active users - 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. 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 Wednesday that this would not be an immediate moneymaker.
Its most ambitious move came in mid-January with a new search tool that mines the vast data posted by individual users and brands. The tool, which Facebook calls graph search, promises to help users answer their questions about everything from jobs to restaurant recommendations. This, too, was described as part of an effort to bolster the company for the future, not spin profits in the short term.
"They're experimenting a lot with ad formats," said Aaron Kessler, an analyst at Raymond James. "Not all of them will stick. It's still in a somewhat experimental phase."
As part of its aggressive appeals to mobile users, a few weeks ago Facebook offered a way for users to make free voice calls using the Internet and leave voice messages for friends unable to text.
The Facebook mobile application this month became the most popular in the United States, accounting for 85 million unique users, according to the market research firm comScore. The company had released a new, faster version of its application for the iPhone last August, followed later in the year by a new version for Android phones.
Facebook showed more advertisements to desktop users and its mobile subscribers. Advertisements in Sponsored Stories appear in the mobile newsfeed and app developers can market their products with what are called app install ads.
One offering, Poke, a fleeting text application aimed squarely at young audiences, sank like a lead balloon. Poke was clearly intended to rival Snapchat, which is popular among teenagers, a demographic that Facebook desperately needs to keep.
Facebook remains a shadow of its principal rival, Google. With about $5 billion in revenue in 2012, Facebook earned a little under one-tenth of what Google brought in. Even in the mobile advertising business, Google takes in over half of all revenue, compared to about 8 percent by Facebook, the research firm, eMarketer estimates.
© 2013, The New York Times News Service