Facebook Inc reported its first quarter-to-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 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,” 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 said.
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 realisation that Facebook is not going to have an easy time meeting high expectations of the public market,” said Jeff Sica, chief investment officer of SICA Wealth Management. “It will affect how people look at the IPO.”
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 $200 million if the company’s recent deal to buy the photo-sharing start-up for about $1 billion does not go through.
Spending roughly doubled over the past 12 months, outpacing the 45% revenue increase during the period, it said.
Net income slid 12% to $205 million in the quarter, from $233 million a year earlier at the rapidly expanding company.
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 noted.
Revenue, which totalled $1.06 billion in the three months ended March 31, declined 6% from the fourth quarter. It was the first quarter-on-quarter drop since at least 2010.