Facebook's Revenue Growth Slows, Costs Jump

Facebook posted its slowest growth in quarterly revenue in two years and higher spending on research and development ate into profits.

Reuters | Robert Galbraith

Shares of the world's largest Internet social network fell 2.4 percent in after-market trading on Wednesday.

Facebook has warned of heavy investments in 2015 as it steps up efforts to expand a collection of products that include messaging service WhatsApp, photo-sharing service Instagram and virtual reality headset maker Oculus Rift.

As a result, Facebook's operating expenses rose 83 percent in the first quarter as R&D costs jumped 133 percent and marketing and sales spending nearly doubled.

However, Facebook said monthly active users grew 13 percent over a year ago to 1.44 billion, with 87 percent of them accessing its service on smartphones and other mobile devices.

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

"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?" he said.

Facebook's net income attributable to stockholders fell to $509 million, or 18 cents per share, in the three months ended March 31, from $639 million, or 25 cents per share, a year earlier.

Excluding items, the company earned 42 cents per share.

Analysts on average had expected a profit of 40 cents per share and revenue of $3.56 billion.

(Reporting by Abhirup Roy in Bengaluru, Yasmeen Abutaleb in New York and Bill Rigby in San Francisco; Editing by Saumyadeb Chakrabarty and Richard Chang)