Facebook posts strong Q1 results, but reveals flat revenues for first three weeks of Q2

David Murphy

Facebook’s shares soared by more than 10 per cent in after-hours trading after the company posted a surprisingly – in the light of COVID-19 – strong set of results yesterday.

Revenues for the first Quarter of 2020 were up 18 per cent year-on-year at $17.74bn (£14bn). Perhaps less surprisingly, with the world starting to go into lockdown in mid-March, Facebook’s daily active user numbers were up 11 per cent year-on-year at 1.73bn, while monthly active users rose by 10 per cent year-on-year to 2.6bn. The number of monthly active users across all Facebook platforms, including Facebook, Instagram and WhatsApp in Q1 was 2.99 billion.

The next quarter may prove more challenging for Facebook however. The company certainly seemed keen to manage expectations as it revealed that it had experienced a significant reduction in the demand for advertising, as well as a related decline in the pricing of its ads, over the last three weeks of the Q1. It also took the unusual step of revealing that ad revenues for the first three weeks of April were in line with the same period in 2019, suggesting that a similar year-on-year increase to that seen in the Q1 results seems unlikely in Q2. 

Alongside the results, Facebook released details of the work it is doing to respond to the pandemic, saying that it is supporting the global public health community's work to ensure everyone has access to accurate information. It said it is also working to address the long-term impacts of the crisis by supporting industries in need and making it easier for people to find and offer help in their communities.

Facebook has so far committed over $300m in investments to help the broader community during the crisis, including creating a $100m grant program to help small businesses and investing $100m to support the news industry.

It is also matching $20m in donations to support COVID-19 relief efforts, providing health organizations with free ads and tools to track the pandemic, offering Workplace to government and emergency organizations for free, and donating $25m to support healthcare workers on the front lines.

"Our work has always been about helping you stay connected with the people you care about," said Facebook founder and CEO, Mark Zuckerberg. "With people relying on our services more than ever, we're focused on keeping people safe, informed and connected."

Reaction to the results has been largely positive, though with a note of caution. eMarketer principal analyst Debra Aho Williamson said: “As we expected, Q1 was a decent quarter, all things considered. The effects of the pandemic didn’t hit most of the world until mid-March, and that was reflected in Facebook’s earnings report.

“But the fact that revenue was flat in the first three weeks of April indicates that Q2 will be a much more challenging quarter than Q1 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 US, businesses will open up at varying rates, making it incredibly difficult for a company like Facebook to get its ad sales momentum back.

“On the usage side, the story for Facebook is better. The strong growth the company demonstrated in both the Monthly Active People and Daily Active People metrics is a sign that using social media remains an important activity for people around the world.

“But even here, the gains may be short-lived as people gradually get back to their normal lives and have less time—and reason—to log onto Facebook as frequently as they may have in Q1.

Amie Lever, head of paid social at MediaCom, noted Facebook’s launch of Messenger Rooms and the increase in usage of Messenger and WhatsApp, but said: “The real challenge lies in turning this popularity into something monetizable. Facebook’s advertising business has been hit hard by the global pandemic as ad spend slows, or in some cases comes to a complete halt. Moreover, Facebook’s prior privacy shortcomings alongside recent security breaches on video services such as Zoom means users will tread with much more caution.

“Its global scalability and rapid product adoption should give it an advantage, but these results only offer a small measure of the impact that COVID-19 will have. It’ll be most interesting to see how Facebook adjusts its products and supports users over the next three months as we slowly edge back to normality or, to be more accurate, a new normal.”

Socialbakers CEO, Yuval Ben-Itzhak, said that despite the challenging economic situation, it was exciting to see Facebook reporting a surge in user numbers, engagement, and even an increase in revenue.

“We have seen that during the COVID-19 crisis, people are spending more time on Facebook and its family of applications, proving that they really are the key platforms for marketers looking to reach and engage with their communities, and also showing just how important social media has become in our lives,” he said. “Social media data [from Socialbakers] shows that ad spend in key regions like North America and Western Europe has started to pick up as savvy marketers look to stay close to their customers as these regions get to grips with the pandemic, which is a good sign that ad revenue will continue to grow for Facebook in Q2 and onward.”

Finally, Aaron Goldman, CMO at 4C Insights said: “Facebook had an impressive first quarter, with 18 per cent revenue growth year-on-year in spite of the headwinds brought on by the pandemic. Brands continuing to spend on the platform are seeing strong performance, with more efficient pricing and higher engagement rates.

"As people stay at home, the Facebook family of apps has become more consequential, and hardware like Portal is gaining additional traction. With the release of group chats and continued investment in Watch, Facebook is poised to further capture consumer time and attention from the 3bn people that use its apps each month. Looking ahead, these engaged audiences inside closed ecosystems will be prime for monetization.”