Facebook Reveals Revenue Slide ahead of IPO

The company revealed that its first quarter-to-quarter revenue slide in two years, a sign that the social network’s sizzling growth may be cooling as it prepares to go public in the biggest ever Internet IPO.

Facebook Inc explained the first-quarter decline, which surprised some on Wall Street, can be linked to seasonal advertising trends. Photo: Jolie O'Dell/Flickr

“It was a faster slowdown than we would have guessed,” said Brian Wieser, an analyst with Pivotal Research Group.

“No matter how you slice it, for a company that is perceived as growing so rapidly, to slow so much on whatever basis – sequentially or annually – it will be somewhat concerning to investors if faced with a lofty valuation,” Wieser added.

Facebook is preparing to raise at least $5 billion in an initial public offering that could value the world’s largest social network at up to $100 billion.

“The biggest issue is the realization that Facebook is not going to have an easy time meeting high expectations of the public market,” explained Jeff Sica, chief investment officer of SICA Wealth Management, which manages more than $1 billion in client assets, real estate and private equity holdings. “It will affect how people look at the IPO.”

According to Reuters, Mr Sica also added that some investors are much likely to sign up in droves for the IPO; nonetheless, growth concerns may make some investors less likely to keep the stock over the long term.

“I’m still encouraging people to participate in the IPO, under the acknowledgement that it could be a bumpy ride,” Sica said. “There are high expectations and I hate high expectations.”

As an updated filing with the U.S. Securities and Exchange Commission on Monday claims, the social networking giant, created by Mark Zuckerberg and others in a Harvard University dorm room in 2004, surpassed 900 million monthly active users in the first quarter and said its full-time staff grew by about 1,100 employees to 3,539 in the past 12 months.

Facebook also opened up that it was ready to pay Instagram $200 million in case the company’s recent deal to buy the photo-sharing start-up for about $1 billion does not go through.

The social network said it paid $300 million in cash for Instagram, along with 23 million shares of Class B common stock. It said the fair value of its Class B common stock was $30.89 per share as of January 31.

Spending roughly doubled over the past 12 months, outpacing the 45 percent revenue increase during the period, it added.

Revenue, which totaled $1.06 billion in the three months ended March 31, declined 6 percent from the fourth quarter. It was the first quarter-on-quarter drop since at least 2010.

“It was bound to happen. You are going to see a slowdown,” said Anupam Palit, an analyst at GreenCrest Capital LLC, noting that it is harder to double revenue when the base is larger.

“They have not cracked international markets yet, while others like Google do very well internationally,” Palit continued.

Apart from slowing growth, the social network has faced plenty of problems. For example, Yahoo Inc is suing it for patent infringement even as the social networking company tries to beef up its intellectual property arsenal. On Monday, it said it would pay $550 million for hundreds of patents from Microsoft Corp.

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