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Facebook fails to wow Wall Street with slow profit growth

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Facebook posted strong revenue for its first quarter of fiscal 2013, beating analyst estimates, but profits only inched ahead slightly as the social network continued to struggle with its transition to a mobile-first company.

Total revenue for the quarter was $1.46bn, up 38 per cent from the previous year's Q1 but down 8 per cent from Q4 of 2012. That's a healthy chunk of change, to be sure. But out of it all, Facebook brought in just $219m in profit, a scant 7 per cent increase from the year-ago period.

That news wasn't exactly terrible, given that many analysts expected income to be flat. But CEO Mark Zuckerberg warned us months ago that the social network's costs would likely grow faster than sales in the short term, and that has certainly proven to be the case. Cost of revenue for Q1 of 2013 was $413m, up fully 49 per cent from Q1 of 2012.

The result was disappointing non-GAAP earnings of 12¢ per share, falling short of the 13¢ analysts were hoping for.

On the positive side, more people used Facebook in the quarter than ever before. Monthly active users (MAUs) hit 1.11 billion, up from 901 million in Q1 of 2012 and 1.06 billion in Q4. Of those, 665 million were daily active users (DAUs), as compared to 526 million in the year-ago quarter and 618 million in Q4 of 2012.

The ratio of DAUs to MAUs – a metric used by many analysts to gauge engagement among Facebook users – was also up. The figure was 58.4 per cent in Q1 of 2012 and by Q4 it had crept up to 58.5 per cent. It was 59.9 per cent in the first quarter of 2013, indicating that a greater proportion of Facebook users were accessing the site on a daily basis than in previous quarters – an encouraging sign.

Predictably, the number of users who access Facebook using a mobile device was up, too. During Q1 of 2013, 751 million users got on Facebook via a smartphone or tablet, up from 680 million in Q4 of 2012.

Mobile users made up a greater proportion of the total, as well; in the three months ending March 2013, 67.7 per cent of Facebook users used a mobile device at least some of the time, compared to 64.2 per cent during the previous three months.

In fact, of those users who accessed Facebook via a mobile app in Q1, 25 per cent used their devices exclusively and never once logged in from the desktop.

Facebook says that 30 per cent of its ad revenue now comes from ads displayed on mobile devices, but while we'd love to explain how that compares to previous quarters, Zuck & Co. aren't telling – except to say that in Q1 of 2012 the percentage was zero.

Despite all this growth, however, the amount of revenue Facebook receives per user, worldwide, was down to $1.35 in Q1 of 2013, compared to $1.54 in Q4 of 2012, interrupting a trend of steady growth throughout the previous four quarters.

Still, Zuckerberg seemed unfazed by the figures in a call with financial analysts on Wednesday, and repeated that he felt his company's first-quarter results were strong and that Facebook would continue to innovate and grow, particularly in the mobile segment.

When asked whether he thought Facebook's strategy took into account a "multi-screen" future, in which users access the internet through a variety of different devices with varying form factors, Zuckerberg said he thought Facebook would be successful no matter what the platform.

"The trend of more, different form factors is somewhat orthogonal from the main trend that we see, which is people sharing in more different ways," Zuckerberg said. "They're going to use whatever technology they have to enable that. The big question for us is just which platforms we see growing the quickest."

Wall Street didn't seem completely sold on the news, however, and Facebook shares were up just a scant 0.26 per cent in after-hours trading, to $27.50. ®

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