Facebook profit declines 79% on spending to lure advertisers

‘Big Transition’

Facebook’s engineers are making improvements to mobile applications, including those for Google’s Android software, Zuckerberg said on a conference call. Better mobile services can boost user engagement, he said.

“We made this big transition, where now there are more people using Facebook on mobile every day than on desktop,” Zuckerberg said. “More people are starting to understand that mobile is a great opportunity for us.”

Profit excluding some items was 17 cents a share. That compares with analysts’ prediction for 15 cents. Analysts had projected $45.8 million in profit on sales of $1.52 billion, according to data compiled by Bloomberg.

Facebook is investing in new products to attract users and keep them on the site longer. Earlier this month, the company announced a revamp of its search service that lets members find information on people, places, photos and interests. The company also has upgraded its mobile applications with new versions for phones running Google’s Android software and Apple Inc.’s iPhone.

‘Investing Heavily’

“We’re investing heavily because we see big opportunities ahead for the company,” David Ebersman, Facebook’s chief financial officer, said in an interview. “So, we’re trying to invest to build the most valuable company we can for the long term and to really invest in areas that can drive engagement.”

Zuckerberg also said that he expects to hire aggressively, causing expenses to grow at a faster rate than sales in 2013. The company had 4,619 employees at the end of last year, according to data compiled by Bloomberg.

Facebook’s fourth-quarter operating margin declined to 33% from 48% a year earlier, while costs rose to $1.06 billion from $583 million.

“Facebook will continue investing in technology and engineering resources to drive growth, tempering margin expectations,” said Colin Sebastian, an analyst at Robert W. Baird, wrote in a research report today. He rates the shares the equivalent of buy with a target price of $34.

User Growth

Facebook reached 1.06 billion users during the fourth quarter, up from 1.01 billion in the third quarter. The number of mobile users was 680 million, up from 604 million in the third quarter.

Analysts had been pushing up ratings amid growing optimism for accelerated revenue growth. Through yesterday, the proportion of analysts covering Facebook with a buy rating had risen to 65% from 52% on Oct. 23, when Facebook posted third-quarter sales that beat estimates, according to data compiled by Bloomberg.

“A lot of these products are pretty new,” said Scott Kessler, an analyst at S&P Capital IQ, who rates the stock a hold. “It’s just going to take some time.”

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