Business

Facebook shares fall as higher costs squeeze profits

Mark Zuckerberg and facebook logo Image copyright Reuters
Image caption Facebook founder Mark Zuckerberg has been successful in transitioning the site to mobile devices

Facebook shares fell 2% in after-hours trading on Wall Street after the company posted slower revenue growth, while research and development costs ate into profits.

The social networking giant said profit in the first quarter of 2015 was $512m (£341m), down 20% on a year earlier.

While revenue rose 42% to $3.5bn, that was slightly below analysts' forecasts.

A bright spot was the rise in monthly active users, up 13% from a year earlier to 1.44 billion.

Notably, for those investors concerned about the firm's efforts to appeal to younger users who access Facebook on their smartphones, monthly mobile users increased by 24% to 1.25 billion, a majority of the site's users.

Facebook has been particularly adept at channelling that growing mobile user base into advertising dollars. The company said that during the quarter, revenue from mobile ad sales made up nearly three-quarters of total ad sales.

"This was a strong start to the year," said founder and chief executive Mark Zuckerberg in a statement.

Investors have been worried about slowing revenue growth, as well as increasing costs at the company. Facebook has been spending more on research and development as it moves beyond its original social networking operation.

Spending on research and development jumped to $566m from $181m a year earlier.

The company has warned that those costs are set to increase, as it looks to expand some of its acquisitions including photo-sharing site Instagram, messaging service WhatsApp, and virtual reality firm Oculus Rift.

"It's a generally solid quarter," said Macquarie Research analyst Ben Schachter. "The trends are all going in the right direction. The cost rise is one thing that can derail this story.

"The question is, can they keep costs under control and what will be the new revenue streams around video, Instagram and virtual reality around Oculus?"

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