Facebook shares drop on guidance, increased costs

Facebook Q3 takeaway
Facebook Q3 takeaway
Zuckerberg smartest in Silicon Valley: Dohmen
Zuckerberg smartest in Silicon Valley: Dohmen
Mobile 66% of Facebook's total ad revenue
Mobile 66% of Facebook's total ad revenue
Shark O'Leary: Facebook's Q3 really good
Shark O'Leary: Facebook's Q3 really good
Facebook beats on top & bottom
Facebook beats on top & bottom

Facebook reported quarterly earnings and revenue that beat analysts' expectations on Tuesday, but the stock tanked after the social media giant handed in a disappointing outlook.

The firm projected that costs and expenses will increase between 50 percent and 70 percent next year as it looks to invest in talent, and new areas like video, CFO David Wehner said on the company's conference call.

In addition, the company sees fourth-quarter revenue growing between 40 percent and 47 percent in comparison to the same quarter last year. Wall Street was looking for year-over-year revenue growth of 45 percent.

The stock shed 10 percent in after-hours trading.

Revenue generated from advertising came in at $2.96 billion, up 64 percent from a year ago, with about 66 percent coming from mobile ads.

Read MoreFacebook is now the same size as China

The social media giant reported third-quarter earnings of 43 cents per share on $3.2 billion in revenue, beating expectations for 40 cents per share on $3.12 billion in revenue, according to a consensus estimate from Thomson Reuters.

Daily active users, which represents the company's most engaged fans, increased 19 percent, year over year, to 864 million, compared with StreetAccount estimates for 852.5 million.

Total monthly active users rose 14 percent, year-over-year, to 1.35 billion, while mobile monthly active users rose to 1.12 billion during the quarter, up 29 percent year-over-year. Both figures were in-line Wall Street projections.

Onathan Nackstrand | AFP | Getty Images

"I think people may be concerned they're not growing fast enough," said Tim Seymour, a "Fast Money" trader and chief investment officer of Triogem Asset Management.

"The bar was very high for Facebook coming into the numbers. ... I think the stock is a victim of its own success. I think Facebook is doing everything right."

Facebook has steadily increased its share of the digital ad market over the the past few quarters. The company's share of the U.S. digital advertising market is expected to reach 9.7 percent this year, eMarketer estimates.

Read MoreHere's what Wall Street was expecting from Facebook earnings

Facebook's operating margin rose to 57 percent in the third-quarter, up from 51 percent a year ago, while the company's cash pile jumped to $8.99 million from $3.32 million at the end of last year.

About 64 percent of adults in the U.S. use the platform and about 30 percent of the general population get their daily news from the site, according to a recent Pew report.

The company has modified its news feed algorithm to place more value on "timely and relevant content," CEO Mark Zuckerberg said on the firm's earnings call Tuesday. In addition, he said Instagram users spend an average of 21 minutes per day on the app.

Facebook has "upcoming catalysts, new revenue streams like autoplay video ads, Instagram monetization and people are going to want to buy the stock before that starts rolling out, and it's rolling out in the next three to six months," Mark Mahaney, an analyst at RBC Capital Markets, said Monday on CNBC's "Squawk on the Street."

—CNBC's Lee Brodie contributed to this report.