Facebook Posts Strong Q1 2020 Results, but Covid-19 Is Starting to Make Its Mark

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  • Facebook Posts Strong Q1 2020 Results, but Covid-19 Is Starting to Make Its Mark

Facebook reported revenue of $17.74 billion in the first quarter of 2020, up 18% from the same period in 2019. But the effects of the coronavirus pandemic did not make their mark until the last three weeks of the quarter, and the outlook for the second quarter is murky, at best.

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The company said in its earnings statement: “Our business has been impacted by the Covid-19 pandemic and, like all companies, we are facing a period of unprecedented uncertainty in our business outlook. We expect our business performance will be impacted by issues beyond our control, including 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 U.S. dollar.”

Facebook said that during the last three weeks of the quarter, it saw a significant decrease in demand for advertising, leading to price drops.

The company will not provide specific revenue guidance for the second quarter or the full year due to the ongoing uncertainty, but it offered a snapshot of the first three weeks in April, saying ad revenue was flat versus the same period last year after rising 17% year-over-year in the first quarter.

Facebook added that those trends apply globally, as most of the countries where it has a major presence are still under some sort of shelter-in-place guidelines.

While Facebook would not speculate on its second-quarter outlook, that didn’t stop analysts from weighing in.

BMO Capital Markets managing director, U.S. internet and media equity research Daniel Salmon projected a 17% drop in Facebook ad growth in the second quarter of 2020 and a full-year slippage of 5%, followed by a larger recovery rate in 2021.

CCS Insight chief operating officer Martin Garner expressed optimism for a rebound as well, saying, “Like Google, Facebook has an opportunity to emerge from the coronavirus crisis as a stronger player. One key impact of the virus will be to accelerate companies’ use of digital services in everything from advertising to collaboration. Although Google and Facebook will take a hit from Covid-19, we expect them to be leading indicators of recovery, as digital advertising and other services show early growth in economies getting back to normal.”

But eMarketer principal analyst Debra Aho Williamson was more cautious, saying in an email Wednesday, “The fact that revenue was flat in the first three weeks of April indicates that the second quarter will be a much more challenging quarter than the first quarter was. Some countries will be open for business sooner than others, and ad spending will start to rise there, but other countries will remain largely on lockdown into May and possibly beyond. Even within countries such as in the U.S., businesses will open up at varying rates, making it incredibly difficult for a company like Facebook to get its ad sales momentum back.”

The first notes of caution about the effects of Covid-19 came when Facebook vice president of analytics Alex Schultz and outgoing vp of engineering Jay Parikh said in a Newsroom post March 24 that while the coronavirus pandemic was driving activity up on many of Facebook’s services, many of the services seeing increased engagement were not monetized, and the company was seeing a weakening in its ad business in countries that were taking aggressive measures against Covid-19 at the time.

Garner agreed, saying in an email this week, “Facebook saw a potentially costly effect with the coronavirus. Advertising revenue will take a hit to some extent. But usage of other Facebook services, including WhatsApp, has ballooned, pushing the company’s costs up. The problem is that Facebook does not monetize some of those services, so there could be a marked impact on profitability.”

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