Despite impressive quarterly numbers from Facebook, investors are concerned about Zuckerberg’s plan to raise the R&D budget further
Facebook’s fourth quarter earnings were way better than what Wall Street was expecting, but the largest social media company is making investors concerned due to its spending plans. Facebook has planned to increase its spending on research and development by 55% to 70% compared to the previous year.
Rising expenses worry investors
The numbers confirm the belief that on the advertising front, the company is doing great. Mobile ad sales surged two times compared to the corresponding quarter last year and now account for 69% of total ad revenue. However, it’s the rising expenses that are making investors nervous.
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In the last quarter, total expenses spiked 87% to $2.7 billion, making some investors cautious “on how much Mark Zuckerberg can channel Amazon’s Jeff Bezos when it comes to managing Wall Street expectation,” according to Katie Benner of Bloomberg. Therefore, despite impressive earnings, shares of the company tumbled by around 2% in after-hours trading.
Facebook CEO Mark Zuckerberg makes most of the decisions on his own when it comes to some of the new plans and policies, exercising supreme power over the company. Zuckerberg never gets nervous from the permanent scrutiny surrounding the company’s plans, says Benner. So as a result, we have more cash toward the R&D segment.
Facebook CEO has big plans
In general, investors are always unwelcoming of any company’s decision to enter any new business or spend a lot of money to pursue intangible goals. A similar case was noticed when Netflix decided to focus on streaming videos, switching from being a mere renter of physical DVDs. Investors are always skeptical if management can pursue big plans, and that is why the moment they learn about the company’s expenses provisions increasing by billions of dollars, they get overly concerned, says Benner.
However, Facebook is not a small company, and its CEO is really smart. During the conference call, Zuckerberg made it clear that he plans to go beyond YouTube/Google. The Facebook CEO is not only focused on making money but also cares about building a premier internet and mobile company.
Whether or not the increased spending will help Zuckerberg fulfill his ambitions for Facebook can’t be predicted for now, but the CEO should make extra efforts to calm nervous investors.