Facebook warns higher costs will hurt revenues

Shares in the social network fell almost 10% in after hours trading after it said expenses would be up to 75% higher next year.

The warning came after it reported third quarter revenues of $3.2bn (£1.98bn) well ahead of analysts’ forecasts.

It made $806m profit, up 90% on 2013.

The increased profits were driven by another formidable three months for Facebook’s advertising business.

Ad revenues for July to September were sharply higher than a year ago.

Perhaps most telling as an indicator of its future profitability was Facebook’s performance in mobile advertising.

Mobile ads now make up 66% of its total advertising revenue.

A year ago they accounted for less than half of it, and at the time of its stock market debut in 2012 Facebook’s mobile ads barely brought in any money at all.

Just as important to social networks as their earnings, are their user numbers, which in Facebook’s case were also better than many expected.

As of the end of September, Facebook had 1.35 billion active users every month, 14% more than in 2013.

And the number of people checking their Facebook page at least once a day jumped 19% to 864 million.

“This has been a good quarter with strong results,” said Mark Zuckerberg, Facebook founder and chief executive.

Costs weigh

However, costs increased by 41% during the quarter mainly due to its recent acquisitions: messaging app WhatsApp and virtual reality headset maker Oculus Rift.

Chief financial officer Dave Wehner said these would increase further over the next year, and forecast revenue growth would slow to between 40% and 47% in the fourth quarter from 59% in the third quarter.

“We believe that we have very substantial growth opportunities in front of us and we plan to invest aggressively to capitalise on those opportunities,” Mr Wehner said.

Mr Wehner did not provide any prediction on revenue growth next year.

“Giving expense guidance without giving revenue guidance is frustrating and spooking The Street. The multi-billion dollar question is what’s revenue growth going to look like next year,” said BTIG analyst Richard Greenfield.