Social networking giant Facebook, which is getting ready for a widely anticipated IPO this spring, saw its first quarter to quarter revenue slide in two years, raising red flags for investors who have been watching its sizzling growth with keen interest.
Facebook is expected to raise a whopping $5 billion when it goes public, based on a $100 billion valuation, but the decline in revenue during the first quarter may be an indication that it can’t sustain its current rate of growth and is a worry to investors as they prepare to get a piece of the Facebook pie. Bryan Wieser with equity research firm Pivotal Research Group, said the slowdown was faster than they anticipated and cautioned: “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 attributed the revenue decline to seasonal advertizing trends.
Chief investment advisor for Sica Wealth Management said investors will still invest in Facebook, but the slowdown will make it less likely they will hold onto their investment over the long term. Jeff Sica said he is still encouraging people to invest in Facebook as long as they understand there will be ups and downs. “The biggest issue is the realization that Facebook is not going to have an easy time meeting expectations of the public market. It will affect how people look at the IPO. “
Facebook filed an update with the U.S. Securities Exchange Commission on Monday disclosing that if its deal to buy photo sharing startup Instagram falls through for $1 billion dollars, it will pay that company $200 million. Facebook’s filing today also shows the company’s full time staff increased by 1,100 to 3,539 in the last 12 months and its active monthly users reached 900 million in the first quarter of this year.
Revenue was an impressive $1.06 billion in the first quarter of this year, but this was a six percent decline from the prior quarter, the first quarter Facebook has seen its revenue drop since 2010. Anapam Palit, an analyst with GreenCrest Capital LLC, said the slowdown was bound to happen, but cautioned Facebook does not have a strategy for increasing its revenue in international markets where it continues to enjoy its greatest growth, like Brazil. “They have not cracked international markets yet while others like Google do very well.”