Facebook posted strong growth in its mobile advertising business last night but rattled investors after saying that it did not plan to boost the frequency of ads shown to users.
Shares of the world's biggest online social network soared as much as 15% in extended trading on Wall Street before suddenly falling 3%.
In July, Facebook said it was showing one ad per 20 stories in the newsfeed, but chief financial officer David Ebersman told analysts that the current ratio, although slightly higher than 5%, would not increase much more going forward.
Ebersman's comments, combined with remarks suggesting that young teenage users in the US were beginning to use Facebook less frequently, soured the mood abruptly on an afternoon when the company topped Wall Street's targets with a whopping 60% increase in revenue, driven by its accelerating mobile business.
Facebook's newsfeed ads have boosted Facebook's revenue and its stock price in recent months.The ads are ideally suited for the smaller-sized screens of smartphones and other mobile devices, from which nearly half of Facebook's monthly users now access the service.
But the company has had to balance showing more ads inside its users' newsfeed with the fear that too many of them would irritate fickle users and drive them elsewhere.
That is a reality that some investors may have overlooked, after Facebook reported strong third-quarter financial results with advertising revenue up 66%.
Revenue from mobile ads, which appear on smartphones, represented 49% of Facebook's total advertising revenue in the third quarter, or roughly $880m. Mobile ads generated roughly $150m, the same time last year when Facebook was just beginning to develop its mobile ad business.
And Facebook said that its ads were getting noticed: The average daily user of Facebook is "engaging" with more than one ad a week, chief executive Mark Zuckerberg said during the conference call.
Facebook shares have doubled in the past three months, as Wall Street has warmed to the Internet company's ability to thrive as consumers increasingly access the Web on smartphones and other mobile devices.
Facebook said the number of its monthly active users increased to 1.19 billion as of the end of September, up from 1.15 billion at the end of June. Facebook said it counts roughly 507 million daily active mobile users.
The company said it earned net income of $425m, or 17 cents a share, in the three months to the end of September, compared with a net loss of $59m, or two cents a share the same time last year.
Excluding certain items, Facebook said it earned 25 cents per share, above the average analyst expectation of 19 cents.
Facebook's total revenue in the third quarter was $2.016 billion, ahead of the average analyst expectation of $1.911 billion.