Facebook losing its glow?

The social networking site is still growing -- but that also means serious growing pains.

It's been a busy couple of months for social networking site Facebook. CEO Mark Zuckerberg appeared on the cover of FORTUNE (dressed in a tie, no less) and shared with us his plans to turn Facebook into the next digital communications platform. Soon thereafter he landed on Oprah Winfrey's couch to offer a tutorial on the site he'd initially built four years ago. In March the company launched a redesign that a vocal group of users roundly criticized. A few weeks after that chief financial officer Gideon Yu resigned unexpectedly, prompting bloggers to speculate that the company must be readying itself for a public offering.

Meanwhile the site has kept adding users at a rapid clip (the redesign has not kept newcomers away), and analysts are starting to raise questions about just how much Facebook is spending on infrastructure to maintain the large site.

It is hard to know much about Facebook's financial situation, because the company is privately held, and its management team has long been reluctant to address the issue of profits. Until now, executives and investors alike have said they place a priority on adding users and getting them to spend more time on the site. In my February interview with operating chief Sheryl Sandberg, she made it clear that the company was very focused on making money specifically so that it could continue to fund its user growth. And early board member Jim Breyer, who put in $1 million of his own money and $12.7 million from an Accel Partners fund, told me he wasn't demanding or even expecting immediate economic returns, saying profitability is "a key focus but there has never been a very specific time table."

Indeed, the company has a deep well of capital to fund its business. It has raised more than $400 million in financing so far. Its largest investor is Microsoft (MSFT, Fortune 500), which paid $240 million in 2007 for a 1.6% stake in the company, giving Facebook a valuation of about $15 billion. Hong Kong billionaire Li Ka-Shing also invested $120 million at the same valuation. (The company's internal valuation as of last June was $3.7 billion.)

But analysts posit that the business itself is becoming increasingly expensive to run. Facebook reports users are uploading more than 850 million photos each day and more than eight million videos. That's a lot of server space.Will Facebook's 2009 revenues be enough to fund this growth? In 2008, the company brought in an estimated $280 milion. Most of that came directly from banner ads, and a substantial chunk was still coming from a deal with Microsoft in which the Internet behemoth sold traditional banner ads, which cost as little as $0.15 cents per one thousand ads shown to users.