Facebook Reports Revenue, Profit Declines in Q1

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With its IPO date looming, Facebook was obligated to amend its prospectus on Monday and share some illuminating financial information with the Securities and Exchange Commission. 

Facebook shared that it saw its revenue decline in the first quarter of 2012, ending two full years of sequential growth and raising possible red flags for investors ahead of one of the most hotly anticipated IPOs in recent memory.

The social network booked revenues of $1.058 billion, up 46 percent annually, but down 6 percent from the previous quarter. Facebook also saw its profit shrink to $205 million, down 12 percent sequentially.

The numbers raise legitimate concerns because Facebook actually increased its user base during the period in question, meaning the company's average revenue-per-user is gradually slipping.

"It was a faster slowdown than we would have guessed," Brian Wieser, an analyst with Pivotal Research Group, told Reuters. "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."

Facebook estimated its number of monthly active users at around 901 million, representing a 30-percent jump from last year's total. The site's daily active users increased more than 40 percent in the quarter to 526 million. However, the company's marketing and R&D costs more than doubled, leading to lower-than-expected net income for the quarter.

The social network attributed the revenue and profit declines on seasonal advertising lulls that tend to occur during the first three months of the year, according to Reuters.

Even with the quarterly revenue slide, Facebook is expected to raise more than $5 billion in its upcoming IPO – a move that could push the company's valuation north of $100 billion. But Monday's financial results could slow investor fervor slightly.

Other facts included in Facebook's amended S1:

  • The company acquired Instagram for $300 million in cash plus 23 million Facebook shares at $30.89 per share. Instagram will be owed $200 million if the deal falls through.
  • Advertising currently accounts for 82 percent of Facebook's business, down from 87 percent a year ago.
  • Facebook's mobile user base now exceeds 500 million.



Edited by Braden Becker
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