April 23, 2012 3:30pm EST – Social media giant Facebook Inc. just amended its S-1 (IPO) filing to include its first quarter 2012 numbers which have largely disappointed:
- Q1 2012 Revenue of $1.06 billion declined 6.4% compared to Q4 2011 Revenue of $1.131 billion.
- Facebook’s Revenue declined in both Advertising (-7.5%) and Payments (Facebook credits) (-1%) during Q1 2012 compared to Q4 2011.
- In Q1 2011, Facebook was sequentially flat ($731 million vs. $731 million in Q4 2010) as ad-sales fell, but payments (Facebook credits), attributable mostly to Zynga gaming, rescued Facebook from what otherwise would have been Facebook’s first sequential revenue drop. Q1 is a seasonally weak quarter for Facebook. Still, mere seasonality cannot explain away the nearly 6.5% sequential revenue drop, which at bare minimum was expected to be flat vs. Q4 2011, especially given agressive rollouts of more ad units per page and larger ad units since then.
- Facebook Q1 2012 revenue grew 44.7% compared to Q1 2011.
- Net Income also declined 32% to $207 million compared to $302 million Q4 2011.
- PrivCo reaffirms its full-year 2012 revenue projection for Facebook, inc. of $5.41 billion (vs. $3.71 billion in 2011), an increase of 45.8%, which was confirmed by Facebook’s 1st quarter year over year growth rate of 44.7%.
- PrivCo does not believe there is any likelihood that Facebook can reach the $6.5+ billion revenue for 2012 that most analysts had forecasted.
A disappointing Q1 2012 is significant as Facebook had implemented several new revenue boosting features leading into Q1 2012, timed in-part to "window-dress" the final pre-IPO quarterly results, including:
- Increasing the number of ads per page from five to seven.
- Forcing the Timeline upon its users to increase page views per visit.
- Creating sponsored “brand stories” in brands’ fans’ newsfeeds.
- Allowing a brand to advertise on the newsfeed of its fans, then in February expanding further to allow such ads in friends of fans (increasing newsfeed ads reach 300-fold).
- Introducing larger “Premium-ads” which offers video and sound capabilities to advertisements.
Q1 is seasonally the weakest for Facebook, and the social media giant should have gone public well before this disappointing S-1 amendment. Despite Facebook management pulling out all the stops for a strong Q1 2012, revenue declined for the first time ever, representing a worse than worst-case scenario this close to Facebook’s public debut in May.
Even with seasonality, last year Facebook managed a flat quarter, and the prior year, Facebook managed a modest increase - this new decline is not merely explained away by seasonality.
"PrivCo has always said that recent companies such as Groupon have shown the danger of filing to go public too soon. But PrivCo believes Facebook’s disappointing first-quarter shows the social media giant may have actually filed to go public too late," said Sam Hamadeh, PrivCo Founder & CEO, in a statement.
In related news, Facebook acquired 650 AOL patents for $550 million that it had bid on and failed to acquire earlier this month from that deal’s winner, Microsoft. This is on the heels of Zuckerberg's $1 billion surprise purchase of Instagram in a rare pre-IPO move. PrivCo research shows that private companies rarely make acquisitions of this size with an IPO just weeks away.
PrivCo expects that the SEC's Department of Corporate Finance will be requesting another S-1 amendment explaining the deals, as showing Facebook's now significantly lower pro forma post-deal cash balances, as the amounts paid for Instragram and the AOL patents are large enough that Facebook's just reported March 31 cash balance figure is now materially incorrect. The rapid-fire moves could slow down the Facebook IPO timing, dangerously risking bumping up against the Memorial Day hard deadline.
"With Zuckerberg's near total one-man control of Facebook, this is a preview of the out of left field surprises that Facebook’s public shareholders can expect," Hamadeh added.
See PrivCo’s Full Private Company Facebook Report
