Facebook (FB) earnings rose for the first time since its IPO, but shares retreated late Wednesday as mobile user and ad growth slowed.
The social networking giant's adjusted fourth-quarter profit rose 13% to 17 cents a share. Analysts had expected a third straight quarter of flat earnings.
Revenue for Menlo Park, Calif.-based Facebook climbed 40% to $1.59 billion, edging views. Sales had grown 32% in each of the prior two quarters.
"There were a lot of expectations, and they confirmed that it's a great quarter with a little bit of upside," said Wedge Partners analyst Martin Pyykkonen. "But it wasn't a crushing number.
Most on Wall Street were eying mobile advertising figures, as Facebook continues to refine its targeted ads for users on cellphones and tablets.
'Mobile First' Isn't Enough
Mobile revenue accounted for 23% of all ad sales at Facebook vs. 14% in Q3. But some views had been for at least 30%, or a less-specific "significant increase," as RBC Capital Markets analyst Mark Mahaney expected.
"But we're really early in the mobile space and they have a good service, good sponsored stories and traction," said Pyykkonen. "It won't be a success overnight, so I'm happy with 23%.
Shares initially fell 10% after hours, but pared their late trading loss to about 4%. The stock rose 1.5% in the regular session.
Mobile monthly users grew 57% vs. a year earlier, a slowdown from Q3's 67% gain.
CEO Mark Zuckerberg told analysts on the post-earnings con ference call that Facebook is now a "mobile first" business and it will build new apps in 2013.
"We aren't operating to maximize our profits this year," he said. "We're doing what we think is best to grow our platform.
Analysts Still Bullish
Still, Zuckerberg said Facebook is building new multimedia mobile advertisements to add to the text-based ads it started posting in users' mobile "News Feed" in Q2 2012.
It's still "very early" for predictions on how much it will grow in the coming quarters, wrote JPMorgan analyst Doug Anmuth. But it does look like it's doing well so far, wrote Anmuth.
"We continue to believe that Facebook's ad platform is more differentiated in mobile than desktop," wrote Anmuth, who rates Facebook as overweight. "And the company will continue to push high-quality ads toward the mobile news feed.
Mobile revenue could top desktop revenue by 2014, Anmuth says.
Desktop advertising showed a "slight acceleration" in Q4, Cantor Fitzgerald analyst Youssef Squali wrote in a post-earnings note. It grew 41% vs. 36% in Q3.
Total Facebook user growth slowed to 25%, to 1.06 billion. Year-over-year growth had been 26% in Q3 and 29% in Q2.
Facebook's adjusted operating profit margin was 46%, down from 55% a year earlier. That reflects heavier spending as the company takes product development seriously, says Pyykkonen.
Facebook earlier this month rolled out "Graph Search," a social search that analysts view as a challenge to Google (GOOG) Search.
Zuckerberg reiterated Wednesday that Graph Search is "not a Web search." But it could boost Facebook users in 2013, even though it doesn't yet have any monetization, he said.
"Down the line, if we do this well, this could become a meaningful business for us," he said.