Before IPO, Facebook’s Net Profits Drop By 12 %

Net profits of Facebook Inc declined year – on – year by 12 per cent in the first quarter to $205 million. Revenues, during the quarter increased by 45 percent to $1.06 billion. The user base of the company touched 901 million in the quarter. 82 per cent of the revenues of the company during the quarter came from advertising while 11 per cent came from gaming.

The company, before its forthcoming IPO, valued its shares at USD 30.89 per share on January 31st, 2012. 

Profits came down in the quarter because of higher operating costs. Operating costs increased to USD 677 million in the quarter. Monthly revenue per user climbed 6 percent to $1.21. 

Facebook’s profits and revenues fell in the first three months of 2012, compared with the final quarter of last year, marking a setback for the social networking company just weeks before its widely anticipated initial public offering.

A leap in expenses hit the company’s profits in the first quarter, as Facebook boosted staff and absorbed costs from employee stock options.

Facebook also put a value of $77bn on itself, which it calculated based on the share price used to settle its $1bn purchase of Instagram, the photo-sharing mobile application, according to people close to the company. People familiar with Facebook’s plans previously estimated the company would be worth between $75bn and $100bn.

Facebook’s revenues dropped for the first time over consecutive quarters, falling nearly 7 per cent to $1.06bn in the first quarter. Year on year, growth slowed from 55 per cent in the final months of 2011 to 45 per cent in the first months of 2012.

Facebook’s net income fell 12 per cent, from $233m in the first quarter of 2011 to $205m for 2012. Profits fell from 11 cents per share to 9 cents per share.

The fall come in spite of steady user growth to 901m monthly active users. Facebook attributed the slowdown to seasonal trends in its advertising business, with advertisers spending more around the holidays in the fourth quarter. The company said the seasonal impact could be more pronounced in the future.

“We believe that Facebook is going through a transitional quarter that may extend into the second quarter as well,” said Debra Williamson, an analyst with eMarketer. “Facebook is now making a concerted effort to get more advertising dollars from major brand advertisers and just recently rolled out new ad products aimed at those advertisers. We’re not seeing the impact of any of that yet.”

Falling advertising prices in Europe further hurt Facebook’s figures. At the same time, Facebook’s expenses spiked to $677m for the first quarter, compared to $343m last year. The jump is attributable to Facebook’s investments in its technical infrastructure and a recent hiring spree. Facebook had 3,539 employees at the end of March, compared with 2,431 employees the year before.

The company also took a hit because of costs associated with stock it used to pay employees. Expenses for the first quarter do not reflect two major purchases in April. Facebook paid more than $1bn to buy Instagram, including $300m in cash and 23m in Facebook shares, each valued at $30.89. It spent $550m to buy 650 patents from Microsoft, about 70 per cent of the portfolio Microsoft bought from AOL two weeks ago.