Why Did Facebook’s 10-K Scare Investors?

Ahead of the social network’s fourth-quarter earnings report, Facebook (NASDAQ:FB) shares had gained 50 percent since November, but the company’s “spend money to make money” strategy has raised concerns about the company’s future profitability. Shares began falling after the results were released last Wednesday, and since Facebook’s 10-K filing was submitted to the U.S. Securities and Exchange Commission on Friday, the stock has maintained its downward trajectory.

Shares are down over 8 percent since earnings were released, and the release of the 10-K may have contributed 2 percent to that drop. The 10-K is a form used by the SEC to give a comprehensive annual summary of a public company’s performance. Facebook’s report alarmed Wall Street because it showed a pronounced shift in its user base from PCs to mobile.

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In the fourth quarter, the company’s PC daily active users “declined modestly.” This could be problematic because the company’s advertising strategy is yet to prove itself. While mobile advertising revenue rose in the fourth quarter, the growth was not significant enough to satisfy investors or analysts. Furthermore, the company’s increased focus on advertising contributed to a 79 percent fall in net income, which shrank to $64 million as operating expenses jumped 82 percent. That growth outpaced Facebook’s 40 percent revenue gain…

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