Facebook profit exposes risk for social network

, Bloomberg

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Mark Zuckerberg

As Facebook Inc. explores a broader range of money-making businesses, such as video ads and music streaming, it will need to shake off the growing pains that marked its first quarters as a public company.

Slowing revenue growth and sagging shares have ratcheted up pressure on Facebook to find new ways to generate sales. At the same time, the world's largest social network will have to assuage concerns about privacy rights, woo investors and stay true to chief executive officer Mark Zuckerberg's pledge that Facebook is more a social movement than a business.

"It's a fine line that they have to straddle," said Victor Anthony, an analyst at Topeka Capital Markets Inc. "It's all part of the growing pains."

Instagram, Facebook's photo-sharing business, incited a backlash last month by fueling concern that it would sell users' images to advertisers without consent. Facebook also ran afoul of privacy advocates last month after a shift that gave users less voting control over changes to privacy and data-collection policies.

As the company harnesses data posted by its more than 1 billion users to help advertisers market wares, Zuckerberg risks alienating consumers and compromising his stated goal of making the world "more open and connected." Facebook has already come under scrutiny by regulators in Europe and the U.S. amid concern it hasn't done enough to protect privacy.

Though the stock has pared some losses since September, Facebook's shares are down 26 percent since its May initial public offering as investors seek evidence that the company can step up advertising-sales growth. Facebook needs more money- making ad products, and it's finding user backlash a tough obstacle, said Rich Greenfield, an analyst at BTIG LLC in New York.

"How much advertising can they push without upsetting the user?" Greenfield said in an interview with Bloomberg TV last month. "You have seen a dramatic change in body language out of the company. Now, they have really focused on monetization."

Analysts on average are projecting more slowing this year. Revenue may rise 30 percent to $6.53 billion in 2013, compared with estimated 35 percent growth last year, according to data compiled by Bloomberg. Sales leaped 88 percent in 2011. Sales of virtual goods for games such as Zynga Inc.'s FarmVille, once considered a hot area of growth, declined in the third quarter from the prior period.

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