Facebook posted annual revenue gains of 17 percent in the first quarter despite declaring COVID-19 had hurt its core advertising business in March. The social network also revealed 2.36 billion people used its family of applications daily in Q1, up 12 percent from 2019.
However, the firm also warned the coronavirus pandemic could cause a severe drop off in its ad sales during the second quarter.
Facebook’s Almost Great Q1 Results
Before the onset of the coronavirus outbreak, Facebook had been doing quite well.
The service generated $17.44 billion in revenue, a significant increase from the $14.91 billion it made in Q1 2019. More impressively, the corporation earned $4.9 billion in net income, a year-over-year improvement of 102 percent. Combined with an adjusted earnings per share jump of 101 percent, the firm seemed poised to put the unpleasantness of 2019 behind it.
Unfortunately, COVID-19 arose and reached the pandemic level by early March. As a result, governments around the world initiated self-quarantine orders, which closed movie theaters, sports leagues, and automobile factories. Since those industries are big digital ad buyers, Facebook has sustained a devastating financial blow because of the outbreak.
In addition, the social network experienced an “unprecedented” surge in services utilization, which increased its operating expenses. Even worse, the firm’s usage spikes did not translate into higher income because its most in-demand products are not monetized. So, while the company saw a 50 percent increase in Messenger traffic in some regions, but its sales only fell.
Facebook said its ad business returned to 2019 levels in the first three weeks of April, but it is bracing for another hit in Q2.
Facebook’s Potentially Grim Q2 Outcomes
In a recent earnings call, Facebook CFO Dave Wehner explained his corporation is anxious about the second quarter because economists are predicting a global gross domestic product contraction. The executive believes a new recession would severely shrink the worldwide advertising market, which would devastate his company’s revenue intake.
The world’s largest social network isn’t the only Big Tech firm expecting a massive downturn in marketing spending in Q2.
After posting their respective first-quarter earnings, Twitter and Google warned shareholders of significantly decreased ad sales in the June period. Since consumers either cannot or do not want to travel or buy new smartphones, those sectors are not launching pricey new marketing campaigns. Though lockdown decrees are gradually being lifted, a full recovery from COVID-19 will take several quarters, if not longer.
During that time, Facebook and its fellow advertising-driven tech titans may experience unprecedented headwinds.
Nevertheless, the social networking conglomerate can withstand a period of extended contraction; it exited Q1 with $60.59 billion cash on hand. Moreover, the company recently inked a deal with Indian multinational Jio Platforms that could make WhatsApp a major income generator. The firm also bought a microLED maker in March that will help bring its long-developing smart glasses project to fruition.
Facebook may be in for a rough patch in 2020, but the corporation has the resources and roadmap to prevail.