Can IPO Investors Stomach Facebook’s Fading Growth?

Facebook (NASDAQ:FB) has been a growth machine since it launched for select university students in 2004, growing its user base to nearly 1 billion in eight years, leading many to believe it untouchable. But while Facebook is still king of the social networks, its growth lately has been none too impressive.

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The social network’s growth rate in the U.S. has come to a near-dead halt, according to the Wall Street Journal. Unique visitors to the site were up 5 percent to 158 million in April, compared with a year earlier, according to ComScore data. That’s the lowest growth rate since the firm started tracking Facebook in 2008. Also keep in mind, that number is significantly lower than the “total users” Facebook claims, which is over 900 billion — that’s because many Facebook account holders rarely, if ever, log in.

In April 2011, unique visitors grew 24 percent over the year-ago period, and in April 2010, visitors grew 89 percent. Yes, the site is still growing, but at a much smaller pace, which begs the question, When will numbers begin to fall back? It seems only a matter of time — and not much time, at that.

The amount of time users are spending on the site is also slowing, according to WSJ. Users spent an average of six hours on the site in April, up 16 percent from 2011. However, in April 2011, average time spent on the site was up 23 percent over the year earlier, and that figure was up 57 percent over the year earlier in April 2010.

“Declining growth rates are a natural part of the growth cycle,” ComScore analyst Andrew Lipsman told The Wall Street Journal. But until now, there hasn’t been anything “natural” about Facebook’s growth cycle. How else could it have been valued at 100 times earnings when it went public? Clearly many people then still had faith in what they thought was an unstoppable growth machine. But the numbers tell a different story.

Another recent report by Reuters and Ipsos showed that roughly 34 percent of Facebook users spend less time on the site than they did six months ago, saying it had become “boring” or that it was “not useful.” Only 20 percent of respondents said they now spend more time on the social network, while roughly half spend the same amount of time.

Those numbers will certainly make advertisers wary — the site has already been criticized for its less-than-stellar ad model, which had General Motors (NYSE:GM), one of the biggest advertisers in the country, ultimately pull its business just ahead of Facebook’s IPO last month. If Facebook sticks to its ad model, but users begin to decline, then it will really be in a mess.

Shares of Facebook traded up 40 cents today to close at $27.40 per share.

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