April 28 (Bloomberg) -- Facebook Inc. has sufficient funding to overcome the economic slump and is adding new forms of interactive advertising that will boost sales 70 percent this year, Chief Operating Officer Sheryl Sandberg said.

“We could not be doing better financially,” Sandberg said in an April 24 interview. “We absolutely do not need to take money. We might take money -- but it doesn’t mean we need to.”

Facebook is expanding amid the worst market for Internet advertising since the dot-com bust, and at a time when companies are still trying to figure out how to advertise on social- networking sites. While Facebook was “nervous” following the collapse of Lehman Brothers Holdings Inc. last year, its confidence for ad sales “grows every week,” Sandberg said.

“We’re on a path, a clear path, to be cash-flow positive next year,” said Sandberg, who joined Facebook from Google Inc. last year. She previously served as chief of staff for the Treasury Department under President Bill Clinton.

The challenge for Facebook, the most popular social- networking site, is that people aren’t used to seeing ads on its pages, said Allen Weiner, an analyst at Gartner Inc. in Scottsdale, Arizona.

“It’s a very, very tough and discriminating audience,” Weiner said. “I also don’t think they’ve totally sold the vast array of potential advertisers and marketers on the value of Facebook.”

Lease Financing

Founded in 2004, Facebook has raised more than $400 million in equity funding, including a $240 million investment from Microsoft Corp. Peter Thiel’s Founders Fund and venture-capital firms Accel Partners, Greylock Partners and Meritech Capital Partners are among Facebook’s other investors. The company has more than 850 employees.

Although Facebook doesn’t need more money, the company uses lease financing for equipment purchases, Sandberg said.

Sandberg, 39, said the company has improved its advertising offerings in the past year so they more closely resemble how the site works. In February, Honda Motor Co. allowed users to exchange heart-shaped virtual gifts -- complete with a Honda logo -- around Valentine’s Day. Four days after the campaign started, 1.5 million people had either given or received virtual gifts that promoted the Honda Fit vehicle.

“It raised awareness about the Honda Fit by bringing new fans to the Honda Fit fan page” on Facebook, said Chris Martin, a spokesman for the Tokyo-based automaker.

Targeting Ads

Facebook is also using information on users’ profile pages to target ads, Tim Kendall, the company’s director of monetization, said at a conference in San Francisco last week. Facebook helped an Asian airline promote airfares by identifying people who expressed an interest in Japan in their profile pages, he said.

Sandberg said Facebook is experimenting with targeting ads based on information on users’ virtual walls -- without revealing any personal data.

Clients are spending more on Facebook than they did before the financial crisis, which contrasts with industrywide declines reported by Yahoo! Inc. and Microsoft Corp., said Jordan Bitterman, a media buyer at Digitas, an online ad agency in New York that is owned by Publicis Groupe SA.

‘Cities I’ve Visited’

Advertisers need to create more applications that work the same way Facebook does, Bitterman said. Travel site TripAdvisor LLC, for example, created an application called “Cities I’ve Visited” that lets users identify where they’ve traveled and share the map with their friends on Facebook.

Users will be much more likely to pay attention to those types of promotions than generic banner ads that run on Facebook, said Bitterman, adding that TripAdvisor isn’t one of his clients. Facebook also needs to find a way to charge advertisers for offering applications, he said.

Some companies have held off buying ads on Facebook because they worry about their brands being displayed next to pictures of scantily clad women or other questionable content, said Gaston Legorburu, chief creative officer at Boston-based Sapient Corp., which provides online advertising services to clients such as Coca-Cola Co.

“I still see a lot of hesitation from big brands to take that risk,” Legorburu said. “They are still very shy around buying media next to user-generated content.”

Older Customers

The increase in visitors to Facebook, as well as the site’s growing popularity with older visitors, give advertisers more potential customers, Sandberg said. For example, movie studios can now market films that appeal to mature audiences, she said.

Older users also tend to have higher median incomes, said Brad Adgate, an analyst with the advertising agency Horizon Media Inc. in New York. Older users could make Facebook more attractive to companies that target higher-income earners, such as luxury carmakers, he said.

Facebook reached 200 million global users this month, double the number from August last year. Much of the growth is coming from older users. People aged 35 to 49 accounted for about 34 percent of Facebook’s U.S. users in March, up from 27 percent a year earlier, according to research firm Nielsen Online. The percentage of users aged 18 to 24 was 7.6 percent, down from 17 percent a year earlier.

“You want to target everyone? We can give you that,” Sandberg said. “Our core focus is on demand generation -- on knowing who you are and showing things that will interest you.”

Facebook had 69.2 million users in the U.S. in March, compared with 55.9 million for News Corp.’s MySpace, its closest competitor, according to New York-based Nielsen.

One indication that 2009 is an important year for Facebook: Mark Zuckerberg, the company’s 24-year-old founder, has committed to wearing a tie everyday to the office, Sandberg said.

“This was a year where we were really, I think, going to have to execute,” Sandberg said.

To contact the reporter on this story: Brian Womack in San Francisco at Bwomack1@bloomberg.net

Last Updated: April 28, 2009 19:07 EDT