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22/03/2012

Forget $3B In Revenue: Things “Don’t Look Good” For Facebook

By Dave Copeland.

Evidence is quickly mounting that Facebook’s initial public offering will not be the big boost the social media sector needs as Silicon Valley companies try to prove to Wall Street they can grow revenues.

On Thursday, PrivCo CEO Sam Hamadeh told VentureBeat that several people close to the company were saying Facebook was going to miss first-quarter revenue projections. Meanwhile, eMarketer released a report predicting Facebook’s advertising revenue growth will slow in 2013 and 2014. That follows reports earlier this week about retailers shutting down Facebook stores.

Oh yeah, and don’t forget about that class action lawsuit filed this week that once again brings Facebook’s ongoing privacy woes into focus.

“Facebook is clearly choosing to increase its ad intrusiveness and frequency to pad its numbers short-term in preparation for its IPO and first quarter results post-IPO trading, at the cost of user experience and long-term growth.” – Financial data services company PrivCo

“We’ve confirmed with sources close to the company that Facebook is indeed behind its projections for ad revenue for the first quarter,” Hamadeh said. “It certainly doesn’t look good for Facebook frankly.”In a blog post, PrivCo cited recently-leaked documents and noted that Facebook’s announcement this week that it was launching a new premium advertisement service suggest the company is scrambling to meet revenue goals. As we have previously noted, Facebook’s move to a publicly-traded company will mean it will need to react to shareholder pressure and may have to launch products sooner than expected to make up for revenue shortfalls.

“These are the types of actions ad-supported companies save for a Rainy Day,” Hamadeh said. “It should be a red flag for investors that Facebook apparently considers that Rainy Day to be now.”

The eMarketer report was slightly more upbeat, projecting ad revenue to grow will grow 60.5% to $5.04 billion this year. But that rate of growth is expected to drop off, falling to 32.8% next year and 13.7% in 2014.

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Part of the problem is that Facebook is still heavily ad-dependent. eMarketer estimates that 85% of its 2011 revenues came from display advertisements. The company has failed to roll out other revenue generating products, as Google did ahead of its IPO in 2004, and the company still hasn’t developed a mobile platform that supports advertisements.

The bottom line for you, the end user? Expect more ads as Facebook tries to meet revenue projections.

“Facebook is clearly choosing to increase its ad intrusiveness and frequency to pad its numbers short-term in preparation for its IPO and first quarter results post-IPO trading, at the cost of user experience and long-term growth,” PrivCo said in its blog post.

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