Facebook Inc reported its first quarter-on-quarter revenue slide in at least 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 initial public offering (IPO).
The company blamed the first-quarter decline, which surprised some on Wall Street, on seasonal advertising trends.
“It was a faster slowdown than we would have guessed,” Pivotal Research Group analyst Brian -Wieser said.
“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 said.
Facebook is preparing to raise at least US$5 billion in an IPO that could value the world’s largest social network at up to US$100 billion.
Investors are still likely to sign up in droves for the IPO, but growth concerns may make some investors less likely to keep the stock over the long term, analysts said.
The company, founded by Mark Zuckerberg 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, according to an updated filing with the US Securities and Exchange Commission on Monday.
Facebook also disclosed that it has agreed to pay Instagram US$200 million if the company’s recent deal to buy the photo-sharing start-up for about US$1 billion does not go through. Facebook said it paid US$300 million in cash for Instagram, along with 23 million shares of Class B common stock.
The company’s net income slid 12 percent to US$205 million in the quarter, from US$233 million a year earlier.
Facebook said its advertising business, which accounts for the bulk of its revenue, typically slows down in the first three months of the year. The rapid advertising growth may have “partially masked” such trends to date, and seasonal impacts may be more pronounced in the future, it said.
Revenue, which totaled US$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.
Apart from slowing growth, Facebook is also grappling with other issues. 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 Microsoft Corp US$550 million for hundreds of patents that originated with AOL, beefing up its intellectual property arsenal.
The deal gives social network Facebook 650 patents and patent applications and license to another 275 patents and applications.