Facebook says its advertising business has begun to stabilise after a steep drop in March as brands pulled back spending amid coronavirus uncertainty. The social media giant today released Q1 financials which outperformed analyst expectations, sending shares up 10 per cent.

In the first three months of 2020, Facebook recorded revenue of US$17.7 billion, up 18 per cent year-on-year. That included $17.4 billion in advertising revenue despite what the Facebook CFO David Wehner described as a “steep slowdown” in the company’s ad business.

“The COVID-19 pandemic had a meaningful impact on our revenue,” Wehner said on an earnings call.

“Revenue was strong from the beginning of the quarter through the first week of March, when we began to see a steep slowdown in our ads business, particularly in countries that implemented shelter-in-place measures to reduce the spread of the virus.”

The impact of COVID-19 on Facebook’s ad business was not evenly felt. Wehner said, for example, travel and auto advertising spend were the weakest verticals while gaming and ecommerce were strong.

The CFO said ad spend was returning to the platform but he also cautioned about the potential impact of an expected economic downturn.

“After initial steep decrease in ad revenue in March, we have seen signs of stability reflected in the first three weeks of April … We are understandably cautious given that most economists are forecasting a global GDP contraction in Q2, which if history were a guide, would suggest that the potential for an even more severe advertising industry contraction.”

More users, more ads

Facebook sold 39 per cent more ads in Q1 this year than last but the average price per ad decreased 16 per cent. The company says the increase in ads is primarily because of “optimisations” to the mobile news feed and increased user “engagement” as people hunkered down in the fight against COVID-19. The decline in cost was driven by the fall in ad demand in March.

Facebook did flag that it will lose “at least some” of the user engagement boost it has received from COVID-19.

Facebook user growth surged in Q1. Monthly active users of the social platform were up 10 per cent year on year to 2.60 billion people. Add in the company’s family of apps like Whatsapp and Instagram and the figure goes to 2.99 billion people, or 39 per cent of the people on earth.

While ads are still how Facebook generates nearly all of its revenue, it also recorded an 80 per cent increase in its “other” category, driven by sales of its virtual reality headsets.

Growth mode continues

Facebook CEO Mark Zuckerberg committed the company to continued growth even with an expected economic downturn. He committed to hiring at least 10,000 more people in engineering and product development roles.

“Overall, I think during a period like this there are a lot of new things that need to get built,” Zuckerberg said.

“And I think it’s important that rather than slamming on the brakes now, as I think a lot of companies may, that it’s important to keep on building and keep on investing in building for the new need that people have and especially to make up for some of the stuff that other companies would pull back on.”

Zuckerberg flagged profit margins may decrease in the year ahead but noted years of high margins had allowed Facebook to continue spending in a crisis. 

“Our financial position has allowed us to continue investing in building products and making investments … even when the underlying economic conditions are challenging.”  

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