Facebook sees ‘signs of stability’ in ad spending after coronavirus drop

Reading Time: 2 minutes

Facebook Inc beat analysts’ estimates for quarterly revenue on Wednesday and said it has seen “signs of stability” for sales in April after a plunge in March, in yet another signal that tech giants may weather the coronavirus-induced economic collapse better than other sectors.

The announcement came a day after Alphabet’s Google said a drop in its online ad sales similarly steadied in April. Shares of Facebook, the world’s biggest social network and the owner of WhatsApp and Instagram, soared 9% in extended trading.

Facebook said advertising revenue was roughly flat in the first three weeks of April compared with the same period last year, a tentative early sign of recovery following a “steep decrease” in revenue in March as lockdowns took effect worldwide to slow the spread of the virus.

Revenue growth was 18% in the first quarter, Facebook’s slowest ever, although it beat analysts’ expectations for growth of 16%, according to IBES data from Refinitiv. Ad sales rose 17% to $17.44 billion.

Chief Operating Officer Sheryl Sandberg told analysts that growth in gaming ads had buoyed sales and ads in technology and e-commerce held steady, offsetting “significant declines” in ads from the hard-hit travel and auto sectors.

Even so, analysts have a gloomy outlook for Facebook’s second quarter, with advertisers across industries slashing marketing budgets to rein in costs in response to virus-related uncertainty, including many of the small businesses and direct-to-consumer brands that market themselves heavily on Facebook.

The flat revenue in April indicates that the second quarter will be “more challenging” than the first, said eMarketer analyst Debra Aho Williamson, as countries come out of lockdown and businesses open back up at varying rates.

Jim Cridlin, global head of innovation at WPP’s Mindshare media buying agency, said Facebook was buoyed by big brands, which have come to see the platform as essential after the company made a concerted push to attract them in the past year.

Facebook took pains “to diversify its advertiser mix, investing in expanding relationships with larger advertisers. This likely has helped protect the platform from the decline among smaller advertisers,” he said.

Keep On Building

Facebook said it was lowering its guidance for total expenses in 2020 to $52 billion-$56 billion, down from a prior range of $54 billion-$59 billion, citing slower headcount growth and savings from canceled travel, events and marketing.

Total costs for the first quarter rose just 1% to $11.84 billion, well below the 5.6% rise that analysts had forecast.

Chief Executive Mark Zuckerberg said he accepted that profit margins will decrease this year, which most expect will happen more profoundly in the second quarter, but said he was committed to maintaining plans for investment.

“I think it’s important that rather than slamming on the brakes now, as I think a lot of companies may, to keep on building and keep on investing,” Zuckerberg said.

He said he especially aimed to “make up for some of the stuff that other companies would pull back on,” which in some ways was “an opportunity” for Facebook.

But Zuckerberg said he would aim to moderate expenses over time, noting that the company’s strong finances amid the economic pullback “has certainly reinforced for me the importance of maintaining high margins.”