Wall Street Slams Facebook Following Earnings Release

Investors continued their love-hate relationship with Facebook Inc. On Wednesday, they punished the company’s stock within minutes after the Silicon Valley social networking giant released fourth-quarter financial results that beat official Wall Street forecasts, but may have fallen short of highly optimistic “whisper” numbers.

Facebook’s shares, which earlier in the day had gained 45 cents to close at $31.24, dropped by as much as 10% in after-hours trading following the release of its earnings. Bullish investors had driven up Facebook’s share price by 35% since the company’s last earnings release in October, but Wednesday’s report appeared to temper their optimism.

The company posted $1.585 billion in revenue in the quarter ended Dec. 31, up 40% from a year earlier. Analysts polled by Thomson Reuters had expected revenue of $1.53 billion.

Net income, however, plummeted 79% to $64 million, or 3 cents a share. A year ago, Facebook had recorded $302 million, or 14 cents a share, in net profit.

The decline in profit comes as the Menlo Park, Calif., technology company ramps up its spending on developing its mobile platform and other products such as Graph Search, a search tool unveiled earlier this year that lets users sift through the people in their networks with certain attributes, say, friends in California who like David Bowie.

Facebook chief executive Mark Zuckerberg tried to temper expectations further, telling analysts during a conference call late Wednesday afternoon that the company plans to aggressively hire engineers and product managers this year to “plant seeds” for long-term growth. Facebook currently has about 4,600 full-time employees.

One area in which Facebook is likely to throw a sizeable portion of resources is its mobile platform. Close to one-fourth of its advertising revenue in the quarter came from mobile ads, up from 14% for the third quarter.

The migration to mobile does have one potential detrimental side effect. As Facebook’s audience of more than 1 billion users turn increasingly to mobile devices for their digital feeds, desktop usage suffers. This translated to stagnant revenue from games and other applications that charge users for access or virtual goods. This is because Facebook games are primarily played on desktop browsers rather than mobile devices. The company earned $256 million in the last four months of 2012 from virtual goods sales and other non-advertising revenue, roughly flat with 2011, despite a 25% jump in active users.

Here’s a historical look at Facebook’s user growth, assembled by the Associated Press:

1 million — End of 2004.

5.5 million — End of 2005.

12 million — End of 2006.

20 million — April 2007.

50 million — October 2007.

100 million — August 2008.

150 million — January 2009.

175 million — February 2009.

200 million — April 2009.

250 million — July 2009.

300 million — September 2009.

350 million — End of 2009.

400 million — February 2010.

500 million — July 2010.

608 million — End of 2010.

750 million — July 2011.

800 million — September 2011.

845 million — End of 2011.

901 million — March 2012.

955 million — June 2012.

1.01 billion — September 2012.

1.06 billion — December 2012.

Source: Associated Press, Facebook Inc.