Facebook\'s profits drop as costs almost double

Facebook, the social network planning an initial public offering, said first-quarter profit fell 12 per cent as operating costs almost doubled.

Net income fell to US$205 million ($252 million) inside the three months through March, Facebook said.

Sales climbed 45 per cent to US$1.06 billion, a slowdown from 55 per cent inside the December period.

Expenses surged to US$677 million, reflecting higher costs of helping marketers reach Facebook's growing user base, which swelled by one-third to 901 million last quarter.

The corporate may struggle to succeed in EMarketer's projection for 2012 sales of US$6.1 billion because it awaits the whole impact of latest tools geared toward wringing extra money from advertisers, said Debra Aho Williamson.

"Facebook has an attractive steep hill to climb to satisfy the expectancies that we set out," Williamson said.

Facebook may seek an IPO valuation of US$75 billion to US$100 billion.

The upper end of that range would value the corporate at about 25 times trailing 12-month sales, greater than double Google's valuation when the quest-engine operator went public in 2004.

Before last quarter, Facebook's sales were projected to realize at a slower rate this year than Google's on the time of its IPO, based on data compiled by Bloomberg.

At US$6.1 billion, 2012 revenue will be 64 per cent higher than the US$3.71 billion reported in 2011. Google's revenue greater than doubled to US$3.19 billion the year it went public.

Facebook unveiled a brand new metric that showed monthly revenue per user climbed 6 per cent to US$1.21. The corporate valued its shares at US$30.89 apiece on the end of January, up from US$29.73 on the end of last year.

Facebook, which plans to boost US$5 billion within the largest-ever internet initial public offering, said to finance the US$1 billion purchase of Instagram, it used 23 million shares and US$300 million in cash.

Chief executive Mark Zuckerberg is rolling out advertising services to step up competition with Google and Yahoo and generate higher sales from Facebook's user base.

Facebook said it might add mobile advertising at the side of new ads to achieve users once they sign off the web site. Facebook said 82 per cent of its revenue came from advertising last quarter, down from 83 per cent within the preceding period.

The corporate also derived less revenue from gaming company Zynga, which contributed 11 per cent of the overall within the quarter, down from 13 per cent a year earlier.

The selection of daily active users rose to 526 million, up 41 per cent from a year earlier. Facebook's employee base rose 46 per cent to 3539 from a year earlier.

"Our costs are growing quickly, that may harm our business and profitability," the corporate said.

Sales had risen 55 per cent to US$1.13 billion inside the fourth quarter, and net income had climbed 20 per cent.

- Bloomberg

By Brian Womack and Lee Spears