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					Facebook reveals revenue, profit slide ahead of IPO



sAN FRANCISCO (Reuters) - 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 realization 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, which manages
more than $1 billion in client assets, real estate and private equity
holdings. "It will affect how people look at the IPO."

Investors are still likely to sign up in droves for the IPO; However,
growth concerns may make some investors less likely to keep the stock
over the long term, he added.

"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."

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 U.S.
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.

Facebook 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 said.
Net income slid 12 percent 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 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.

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.

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 $550 million for hundreds of patents from
Microsoft Corp.

PAYMENTS HINT

Facebook gets most of its revenue from advertising, but has a Payments
business centered around Facebook Credits, a virtual currency used mainly
to buy virtual goods within social games.

However, the company hinted at a possible an expansion of Facebook
Credits into other areas.

Facebook gets a cut of up to 30 percent from virtual goods sales on its
platform.

"In the future, if we extend Payments outside of games, the percentage
fee we receive from developers may vary," the company said in its IPO
filing on Monday.

Some investors expect e-commerce to be a major area of expansion for
Facebook. Some industry experts said that if Facebook Credits were used
for purchases of physical goods, the company's cut would have to be a lot
lower than 30 percent.

				
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