Facebook Q1 Rev, Profits Dip From Prior Quarter

by Mark Walsh, Apr 23, 2012, 6:13 PM

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Facebook’s first-quarter revenue increased 45% from a year ago to more than $1 billion, but both sales and earnings dipped from the fourth quarter on higher marketing and other costs during the period. 

A month before its expected IPO, Facebook reported quarterly revenue of $1.06 billion, down 6% from the prior quarter despite a gain in monthly active users to 901 million from 845 million at the end of 2011. Advertising sales, which make up the bulk of Facebook’s revenue, slipped to $872 million from $934 million in the fourth quarter.

In its regulatory filing Monday, the company said the fall-off reflects a seasonal pattern of typically strong growth in the third and fourth quarters to a slowdown or decline in the first quarter. “The rapid growth in our business may have partially masked these seasonal trends to date and the seasonal impacts may be more pronounced in the future,” it stated.

Net income in the first quarter dropped to $205 million from $302 million in the fourth quarter and from $233 million in the year-earlier period. That translates to a decline to 9 cents from 11 cents per share.

Facebook’s total expenses for the quarter nearly doubled to $677 million from $343 million a year ago, and $583 million in the fourth quarter, on higher spending on operations, marketing and sales, research and development costs. The company said the higher overhead also reflected significant increases tied to share-based compensation expenses in 2012.

Earlier this month, Facebook agreed to acquire Instagram -- maker of the popular photo-sharing app of the same name -- for $1 billion in cash and stock. In its filing, the social network revealed that $300 million would be paid in cash and the balance in 23 million shares of common stock. If the deal fails to win government approval, Facebook has agreed to pay Instagram a $200 million termination fee.

Just today, Facebook announced it would agree to pay Microsoft $550 million for its rights to 650 patents and patent applications that the software giant recently acquired from AOL. That deal, along with its recent acquisition of other patents from IBM, is aimed at helping the company gear up for its patent battle with Yahoo.

Facebook payments and other fee-based revenue on Facebook nearly doubled to $186 million from a year ago. App maker Zynga alone accounted for 11% of total Facebook revenue from processing fees related to its sale of virtual goods and from advertising directly purchased. That proportion is down from 13% a year ago, suggesting that the social network is slightly less dependent on Zynga games like "CityVille" and "FarmVille" for revenue.

When it comes to mobile use, Facebook said monthly active mobile users in the first quarter had increased to 488 million from 288 million a year ago. (The most recent publicly stated figure had been 400 million). Despite adding Sponsored Stories ads to users’ news feeds in March, Facebook acknowledged that it still generates no meaningful revenue from its mobile products.

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