By Alexei Oreskovic
SAN FRANCISCO (Reuters) - Facebook Inc doubled its mobile advertising revenue in the fourth quarter, a sign that the No.1 social network is seeing early success in expanding onto handheld devices as more of its users migrate to smartphones and tablets.
Investors want to see evidence that CEO Mark Zuckerberg's 8-year-old company is delivering on promises to develop a full-fledged mobile advertising business, a challenge facing many of today's technology leaders including Google Inc.
But the growth trailed some of Wall Street's most aggressive estimates. Shares of Facebook were down roughly 3 percent at $30.21 in after-hours trading on Wednesday, regaining ground after falling more than 8 percent immediately after the numbers were released.
Mobile revenue estimates among some analysts and investors were unreasonably high, said Sterne, Agee & Leach analyst Arvind Bhatia.
"As a result the stock was set up for disappointment," he said. Overall, he said, Facebook's results were encouraging.
The company's overall advertising business grew at its fastest clip since before its May initial public offering, helping the company's revenue expand 40 percent and surpass Wall Street targets.
Facebook has rolled out a wide variety of new services in recent months as the company seeks to stay ahead in the fast-moving Web market and to convince Wall Street that it can turn its audience of more than 1 billion users into a sustainable business.
Zuckerberg said the company plans to spend heavily to recruit talent in 2013 as the company pushes forward with new product development, particularly "mobile-first" services.
"We aren't operating to maximize our profit this year but we're doing what we think will build the best service and business over the long term," Zuckerberg said during a conference call with analysts on Wednesday.
The strategy makes sense for an Internet company, said Stifel Nicolaus Jordan Rohan. But it will force Wall Street analysts to "ratchet down" their profit expectations.
"The conference call was a bit of a sobering event," said Rohan. "The company advised analysts and investors to expect lower margins, and downplayed the near-term opportunity for revenues from Gifts," Facebook's recently-launched online commerce service.
Facebook shares, which lost more than half their value following a rocky IPO, have regained ground in recent months as concerns about its mobile ad business and insider selling have eased. Shares have surged roughly 60 percent since mid-November.
Zuckerberg said that recently introduced products such as Gifts, which allows Facebook users to purchase retail goods for their friends, as well as its new social search tool could become important businesses in the future. But in the near term he said that Facebook's advertising efforts will be the core of its business.
The number of monthly active users on the social network reached 1.06 billion at the end of last year, with 618 million daily active users, Facebook said. But much of that growth again came from emerging markets like Asia, rather than the United States or Europe, where revenue per user is several times higher. For instance, average revenue per user is $13.58 for the United States and Canada, but just $2.35 in Asia.
Overall fourth-quarter revenue came to $1.585 billion, up 40 percent versus $1.131 billion a year earlier. Analysts were looking for revenue of $1.53 billion.
Executives said some revenue from its payments business dating back to September 2012 had been booked in the October-December quarter, inflating the number somewhat. Excluding those deferred sales, overall revenue would have been up just 34 percent in the quarter.
But it was the fledgling mobile business that dominated Wednesday's discussion on the call. Finance Chief David Ebersman said Facebook had "basically doubled" mobile ad revenue from the third quarter to the fourth quarter.
"Two quarters ago we really had no mobile revenue," Ebersman told Reuters in an interview. "In the course of a pretty short period of time, we've dramatically ramped up our ability to monetize mobile."
Facebook said net income in the fourth quarter was $64 million, or 3 cents a share, compared to $302 million, or 14 cents a share a year earlier.
Excluding certain items, Facebook said it earned 17 cents a share, compared to the 15 cents a share expected by analysts polled by Thomson Reuters I/B/E/S.
Facebook expects expenses -- excluding stock-based compensation for employees -- to jump 50 percent in 2013, likely outpacing revenue growth. Capital investments may climb to $1.8 billion, up 14 percent from last year's $1.575 billion.
"They're going to have to continue to develop new products, which will cost them," said Bhatia of Sterne, Agee & Leach.
But he said, "the market would be less happy if they were not finding enough opportunities."
(Reporting by Alexei Oreskovic; Editing by Phil Berlowitz and Ryan Woo)