Facebook shocked observers yesterday with Q1 2012 earnings that showed a sequential decline in revenue. It was seasonal—the ad business always slows after the holiday shopping season—but still, people have come to expect big things from Facebook. (Although B.I. Advertising predicted Facebook’s Q1 would soften back on April 16 and April 20.)
These two charts show in a visually intuitive way what’s happening at the company. Overall, quarter to quarter ad sales growth just isn’t there any more, and has been declining for a while:
Conversely, Facebook is having to work harder to get those declining sales. Its marketing and salesforce costs are increasing, and increasing as a percentage of ad sales:
Facebook explained that its ad prices are falling globally, and that its increased costs come from having to hire an ever larger army of salespeople:
- Average price per ad for the first quarter of 2012 compared to the first quarter of 2011 was unchanged, as an increase in the average price per ad in the United States and Canada was offset by an increased percentage of our worldwide ads being delivered in the Asia and Rest of World geographies where the average price per ad, while growing on a year-over-year basis, is relatively lower. The average price per ad was also affected by a decline in the average price per ad in Europe in the first quarter of 2012 compared to the same period in 2011 due, we believe, to continuing weak economic conditions in that region.
- Marketing and sales expenses in the first quarter of 2012 increased $91 million, or 134%, compared to the same period in 2011. The increase was primarily due to an increase in our user-, developer-, and advertiser-facing marketing, and to a lesser extent, an increase in payroll and benefits expenses resulting from a 34% increase in employee headcount to support global sales, business development, and customer service.
Facebook now has 3,539 full-time employees in total. It spends about 22 per cent of its operating costs on marketing and sales.
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