Facebook’s Heavy Spending Results In Declining Profits

BELCHATOW, POLAND - APRIL 06, 2014: Facebook application on smart phone screen.
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Facebook has reported a first-quarter revenue that was lighter than anticipated. The report shows Facebook’s total costs rising, but an overall declining profit.

Facebook’s first-quarter earning release for 2015 showed that its total cost and expenses rose 83 per cent to US$2.61 billion. Research and development spending doubled to $1.06 billion, and Facebook’s operating margin fell to 26 per cent from 43 per cent.

According to USA Today, analysts had predicted that Facebook’s revenue would hit $3.56 billion. The earning release should that Facebook had only reported revenue of $3.54 billion. With increasing spending, net income fell 20 per cent to US$512 million.

There was also a 4 per cent drop in desktop ads and a 5 per cent drop in payments and ‘other’ fees, which includes revenue made from Facebook’s in-house games.

Facebook, which generates over half its revenue outside of the US, argued that fluctuations in foreign currency would have had an effect on the earnings. The release said that: “Excluding the impact of year-over-year changes in foreign exchange rates, revenue would have increased by 49 per cent.” An increase in Facebook employees, to 10,082 employees, and heavy spending on data centres were also blamed for the lacklustre first-quarter revenue.

“In order to continue to beat estimates and continue to increase growth, they have to come up with something new, and I don’t know that they’ve done anything new in a little while,” Adam Foroughi, CEO of marketing platform AppLovin told International Business Times.

“That’s what you’re seeing: a very large business grow steadily, but it’s not going to be as easy for that to blow out analysts’ estimates anymore.”

But it’s not all tears and fears for Facebook, users and mobile advertising are all on the increase from 2014 first-quarter reports. Facebook had an average of 936 million daily active users in March 2015. Facebook had 789 million daily active users on mobile devices in March. Monthly active users were 1.44 billion as of the end of March. On mobile, Facebook had 1.25 billion people monthly users.

Facebook’s mobile advertising made up 73 per cent of the company’s total advertising revenue, up from 59 per cent in 2014.

Facebook chief operating officer Sheryl Sandberg, told USA Today, that 75 per cent of video views on Facebook were taking places on mobile devices. With Facebook users now watching more than 4 billion videos on Facebook every day.

Mark Zuckerberg, Facebook founder and CEO, said in the report that: “This was a strong start to the year, we continue to focus on serving our community and connecting the world.”

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