Facebook beats Street but expenses a worry

SAN FRANCISCO — Facebook delivered a Street-beating second quarter with revenue, profits and user growth all exceeding expectations.

The only hitch: Expenses grew even faster.

The Menlo Park, Calif.-based social network reported revenue jumped 39% to $4.04 billion in the second quarter, up from $2.91 billion a year ago.

But that gain was outpaced by total costs which rose 82% from the same quarter a year ago.

Net income fell 9.1% to $719 million, or 25 cents a share, compared with $791 million, or 30 cents a share, a year ago.

Excluding certain expenses, Facebook said it would have earned 50 cents a share. Analysts had expected adjusted earnings of 47 cents.

Facebook shares were volatile in extended trading on Wednesday, seesawing between gains and losses.

Shares, which have been trading near all-time highs, lost 2% following the earnings report. They briefly turned higher during Facebook's conference call when Facebook Chief Financial Officer David Wehner narrowed Facebook's guidance on expense growth rate for 2015 to 55%-60% from 55%-65%. Shares fell again when Wehner said to expect slowing revenue growth for the rest of the year.

Investors are increasingly scrutinizing the expenses of technology companies such as Facebook and Google, said S&P Capital IQ analyst Scott Kessler.

Facebook warned investors earlier this year that costs and expenses would rise dramatically as it invests in long-term projects such as virtual reality, as well as in recruiting top engineers and building new data centers.

"People are worried about runaway, undisciplined, expenses and ultimately, unsuccessful expenses," Kessler said. "But here the proof is in the pudding. Facebook put up the growth numbers and that is what ultimately people want to see."