Why Facebook expects to invest huge sums of money next year

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Facebook’s operating expenses 

Earlier in this series, we discussed why Facebook, Inc.’s (FB) stock declined after the company announced its 3Q14 earnings. The main reason was Facebook’s disappointing outlook. Facebook announced below-par 4Q14 revenue growth expectations and huge operating expenses in 2015.

In 2015, Facebook expects to increase its investments in the range of 50% to 70% on a non-GAAP basis (generally accepted accounting principles), compared to 2014. Also, Facebook expects its 2014 non-GAAP operating expenses to increase in the range of 30% to 35% compared to 2013. As the chart below shows, the percentage increase in yearly operating expenses in 2015 will be about double that of 2014.

Facebook operating expense increase

Facebook looking to invest across the board

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Facebook said it’s expecting an increase in operating expenses because of the across-the-board investments it’s planning for next year. Management said it’s investing both in existing products and in new areas such as Oculus, WhatsApp, and ad-tech initiatives. Also, on the infrastructure side, the company plans investments to support core business growth. This includes video and global project, Internet.org.

Facebook isn’t the only player in the Internet industry to substantially increase its investments. Amazon.com, Inc. (AMZN) announced its 3Q14 earnings recently, reporting its biggest operating loss ever. Google Inc. (GOOG)(GOOGL) also reported that it’s spending heavily on new initiatives such as self-driving cars. eBay Inc (EBAY) is another interesting story. eBay’s operating margins continue to decline because the company stepped up targeted marketing efforts to fight lower user engagement and lower take rates.

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