SAN FRANCISCO - 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 company, founded by Mark Zuckerberg in a Harvard 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 to 3,539 employees 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 $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.
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.