Facebook's New Challenge: Sell Wall Street on Spending

The Internet social networking company, which has dazzled with two years of breakneck revenue growth, is struggling to win support for plans to pump billions of dollars into infrastructure and businesses ranging from virtual reality headsets to satellites.

Facebook shares fell about 2 percent in after-hours trading on Wednesday, after the company beat Wall Street's fourth-quarter revenue target and discussed aggressive 2015 spending plans. The stock has fallen 7.6 percent since late October, when it first outlined these plans.

"Expectations for Facebook are already very high and perhaps some commentary around aggressive investments can spook investors a bit," said Colin Sebastian, a Robert W. Baird & Co analyst.

Facebook said on Wednesday that 2015 capital expenditures will range from $2.7 billion (roughly Rs. 16,593 crores) to $3.2 billion (roughly Rs. 19,666 crores), a sharp increase from $1.83 billion (roughly Rs. 11,246 crores) in 2014.

While Facebook slightly narrowed the range of its expected increase in 2015 operating expenses, the projected level remains well above previous levels.

Facebook's staff grew 45 percent to 9,200 employees in 2014 through hiring and buying a string of companies. The hiring shows no signs of slowing down, with listings for more than 1,200 positions posted on Facebook's website earlier this month.

The spending spree comes as Facebook faces intensifying competition with Twitter Inc, Google Inc and a host of well-capitalized Web startups such as Snapchat.

"They're looking at a lot of investment around data and video and search which are expensive," said Evercore ISI analyst Ken Sena, noting that Facebook was doing a good job convincing investors about the need to invest.

Facebook has acquired a collection of popular products, including messaging service WhatsApp and photo-sharing app Instagram. But Chief Executive Mark Zuckerberg has made clear he is in no rush to profit from the new services yet.

Robert Baird analyst Sebastian noted that by focusing on adding users to the new services, Facebook is creating more opportunities to place online ads, which should give investors some comfort.

Facebook is also racing Google to build expensive satellites and drones to expand Internet connectivity to remote regions of the world.

Why should shareholders care about that, one analyst asked Zuckerberg during the conference call after Facebook released earnings.

"It matters to the kind of investor we want to have," replied Zuckerberg.

© Thomson Reuters 2015