Social networking giant Facebook has reported its first quarter-to-quarter revenue slide in at least two years, in a sign that its sizzling growth may be cooling just a few weeks ahead of its expected Initial Public Offering (IPO) in May.
Facebook said in a regulatory filing on Monday that its first quarter net income fell 12 per cent, to $205m, in the three months that ended March 31. It was at $233m a year earlier.
Net income attributable to common shareholders fell to $137m from $153m. That amounts to earnings of nibe cents per share in the latest quarter, down from 11 cents a year earlier.
The company blamed the decline, which surprised some on Wall Street, on seasonal advertising trends and higher expenses.
"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 $5bn in an IPO that could value the world's largest social network at up to $100 bn.
The company, founded by Mark Zuckerberg in a Harvard University dormitory room in 2004, 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.
It said it had 901 million monthly active users as of March 31, up from 845 million as of the end of 2011.
The number of people using its mobile applications each month also grew to 488 million, as of the end of the quarter, from 432 million as of the end of last year.
Facebook's revenue, which totaled $1.06bn in the three months ending March 31, declined six per cent 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.
But he also said Facebook has not worked out how to make more money in some international markets where it is growing the fastest, such as Brazil, India and the Philippines.
"They have not cracked international markets yet, while others like Google do very well internationally," Palit added.
Facebook on Monday also gave details on its pending $1bn acquisition of Instagram, the company behind a popular mobile photo-sharing application with the same name.
Facebook said it was paying $300m in cash and along with about 23 million shares for Instagram. It also agreed to pay Instagram a $200m termination fee if the deal does not go through.
The company also confirmed it had applied to list its stock on the Nasdaq under the ticker symbol "FB".
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.
Apart from slowing growth, Facebook is also grappling with other issues.
Yahoo 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 $550m for hundreds of patents from Microsoft.