Facebook posts 17 percent gain but Zuckerberg paints a gloomy pandemic picture
Facebook CEO Mark Zuckerberg sounded pessimistic about the coronavirus pandemic and the prospects of a speedy recovery in an earnings call with Wall Street analysts on Wednesday, after the social network reported a slowdown in advertising.
The impact on our business has been significant and I remain very concerned that this health emergency, and therefore the economic fallout, will last longer than people are currently anticipating,” Zuckerberg said.
The coronavirus pandemic led to a shutdown of the global economy in March, which also affected the advertising industry, Facebook’s main source of revenue. Facebook’s advertising hit $17.4 billion in the first quarter, up 17 percent year over year, but growth has stalled so far in the second quarter, the company reported.
Still, Facebook’s stock rose nearly 10 percent in after-hours trading, as revenue beat analyst expectations, and the company shared some bright spots about its user base. Facebook said more people were using its services while stuck at home during the quarantine period. Facebook reported that 2.36 billion people used its apps daily, an increase of 11 percent year over year. The main Facebook app reached 1.73 billion daily users, also up 11 percent.
David Wehner, Facebook’s chief financial officer, said that all that activity helped push up the number of ad impressions, because there was more inventory to be sold. Impressions rose 39 percent year over year Wehner said. Meanwhile, the price of ads decrease 16 percent, because there was less demand from advertisers that were pulling back on their spending.
Facebook’s performance offers a window into the rest of the advertising market, which always moves with the fortunes of the global economy. Facebook saw automotive and airline advertisers curb their appetite for marketing while industries like gaming and e-commerce picked up the pace of their advertising. There is “potential for an even more severe advertising industry contraction,” Wehner said.
Facebook is recalibrating its business to function during the current climate. This week, Zuckerberg announced major product updates to Facebook’s video lineup to cater to more people using video calls and livestreams on Facebook and Instagram. In Facebook Messenger, there is a new product called Rooms, which is a video-chatting service similar to Zoom.
With revenue growth slowing in the first quarter, and more uncertainty in the second quarter, Zuckerberg said that he would pay closer attention to Facebook’s profit margins. Facebook is looking to reduce expenses in certain areas to keep its costs down. The company's operating margin was 33 percent in the first quarter, down from 42 percent in the prior quarter. Profits were $4.9 billion for the quarter down from $7.35 billion in the fourth quarter of last year.
Facebook warned about the current quarter and the advertising market. “We experienced a significant reduction in the demand for advertising, as well as a related decline in the pricing of our ads,” the company said in its earnings report.
Facebook said that in the first weeks of the second quarter, ad revenue was flat compared to last year. “The April trends reflect weakness across all of our user geographies as most of our major countries have had some sort of shelter-in-place guidelines in effect,” the company said.