Facebook has published its earnings report for the first quarter of 2020, reporting revenue growth despite period of “unprecedented uncertainty”.
The company reported revenue of $17.74bn, up over 17% year-on-year, and daily active users were 1.73 billion on average for March, an increase of 11% year-on-year. Although this is likely lower than Facebook may have anticipated this time last year, it suggests that at present, the social media giant has weathered the significant drop in ad spending.
Facebook earnings highlight “how important social media has become in our lives”
With numerous countries around the world currently under lockdown, many users are increasingly reliant on messaging and video chat services. Facebook said that it anticipates that it “will lose at least some of this increased engagement when various shelter-in-place restrictions are relaxed in the future”.
“Despite the challenging economic situation, it’s exciting to see Facebook reporting a surge in user numbers, engagement, and even an increase in revenue,” said Yuval Ben-Itzhak, CEO of Socialbakers.
“We have seen that during the Covid-19 crisis people are spending more time on Facebook and its family of applications, proving that they really are the key platforms for marketers looking to reach and engage with their communities – and also showing just how important social media has become in our lives.”
Unsurprisingly the report was dominated by the ongoing Covid-19 pandemic, with Facebook noting that it has committed over $300m to help its “broader community during the crisis”, including a $100m grant programme for small businesses and $100m to support the news industry.
During the quarter, Facebook experienced a “significant reduction” in demand for advertising, as numerous events are cancelled, businesses have been made to close their doors and many have pulled back on marketing spending. According to Business Insider, Facebook made 99.6% of its revenue in Q2 of 2019 from advertising, meaning that as with Alphabet, which saw a “significant and sudden slowdown in ad revenue” in its quarterly report published earlier this week, this could have a significant impact on overall revenue.
Because of this, Facebook has not published specific revenue guidance for the second quarter or full year 2020, indicating that although the social media giant may be in a better position than most to survive this period of economic uncertainty, it is not entirely immune to its effects. However, although ad revenue saw a “steep decrease” in March, Facebook said that it had “seen signs of stability reflected in the first three weeks of April”, with advertising revenue approximately the same as the same period last year.
According to research by Socialbakers, Facebook as ad spend in East Asia grew 12.7% since the beginning of March, with lockdown measures eased in some countries. This suggests that ad revenue could pick up in other areas of the world in the coming months.
“Savvy marketers look to stay close to their customers”
On a call to investors, Facebook CEO Mark Zuckerberg said that it is important for businesses “to keep building for the new needs people have” but expressed concern that “the economic fallout will last longer than people are currently anticipating.”
Facebook said that it is facing a period of “unprecedented uncertainty” in its business outook and expected business performance to be impacted by “the duration and efficacy of shelter-in-place orders, the effectiveness of economic stimuli around the world, and the fluctuations of currencies relative to the US dollar.”
Ben-Itzhak believes that this shows that, after the initial adjustment period, marketers are now exploring new ways to reach customers.
“Social media data shows that ad spend in key regions like North America and Western Europe has started to pick up as savvy marketers look to stay close to their customers as these regions get to grips with the pandemic, which is a good sign that ad revenue will continue to grow for Facebook in Q2 and onward,” he says.
In after-hours trading on Wednesday, Facebook’s shares rose 10% following the news. This is despite both earnings and user growth missing predictions, according to MarketWatch.
“Facebook is continuing to invest in expansion”
Despite the ongoing uncertainty numerous businesses are facing, Facebook’s quarterly report revealed that the tech giant is still focused on expansion. with the company outlining plans to “continue to invest in product development and to recruit technical talent” despite a “moderate reduction in the planned growth rate of total expenses”.
“In spite of Covid-19, Facebook is continuing to invest in expansion,” said Martin Garner, COO at CCS Insight. “It plans to hire 10,000 new staff this year, and says it feels a responsibility to develop products to help its customers through the pandemic period. This approach means the company will be less profitable for the rest of the year, but it sees this as an investment.
“Coronavirus has forced many businesses to accelerate their online plans abruptly. Many, especially small businesses, have their first web site as a Facebook page. Facebook is investing heavily to help those companies build up their ecommerce business by offering fund raising tools, gift cards, links to delivery options, inventory tracking and more.
“Although the macro-economic picture will govern Facebook’s overall fortunes, the company should emerge from the crisis better placed, as digital business leads the way back towards normality.”
It is also likely that Facebook is looking to capitalise on the surge in popularity video conferencing is currently seeing. Last week, it rolled out Messenger Rooms, a new group video calling feature that allows up to 50 participants to chat at once, and last month announced plans to donate over 2000 Facebook Portals to care homes in the UK.
The company has also announced that it is introducing new Facebook Live video features, including the option to to charge for access to videos, as many in the fitness and entertainment industry are currently utlising livestreams as a source of income during lockdown.
“Facebook had an impressive first quarter with 18% revenue growth year-on-year in spite of the headwinds brought on by the pandemic,” said Aaron Goldman, CMO at 4C Insights.
“Brands continuing to spend on the platform are seeing strong performance with more efficient pricing and higher engagement rates. As people stay at home, the Facebook family of apps has become more consequential and hardware like Portal is gaining additional traction.
“With the release of group chats and continued investment in Watch, Facebook is poised to further capture consumer time and attention from the 3 billion people that use its apps each month. Looking ahead, these engaged audiences inside closed ecosystems will be prime for monetisation.”