Facebook shares soar on ‘signs of stability’

Facebook says it has seen “signs of stability” in its business this month following a sharp fall in advertising revenues in March because of the coronavirus crisis, in unexpectedly upbeat news that boosted its shares nearly 10 per cent in after-hours trading. 

Revenues in the first three months of 2020, which come largely from advertising, rose 17 per cent year on year to $17.7bn, just above analysts’ expectations of $17.2bn. 

This marked the slowest pace of sales growth since the world’s largest social network listed publicly in May 2012, as it experienced “a significant reduction in the demand for advertising, as well as a related decline in the pricing of our ads, over the last three weeks of the first quarter of 2020”.

However, Facebook added that the steep coronavirus-related decrease in advertising revenues had since stalled, with advertising revenue in the first three weeks of April “approximately flat compared to the same period a year ago”. 

The company also reported elevated engagement — particularly in messaging and video call features — with billions seeking entertainment under lockdown. Monthly active users across its apps — which include WhatsApp and Instagram — stood at 3bn as of March 31, up 11 per cent year over year. Ad impressions in the quarter also rose 39 per cent.

The news indicates that internet companies may be well placed to ride out the crisis in the long term. Shares in rival Alphabet rose 8 per cent in after-hours trading on Tuesday after the internet search engine said it had begun to stabilise in April after a March downturn. 

Facebook’s after-hours share price rise came on top of a 6.2 per cent increase in regular trading hours.

Decimated by the pandemic, certain industries have slashed marketing budgets. On a call with analysts, Facebook’s management said that it had seen cutbacks in the travel and automotive sectors, but that gaming and ecommerce had shown “relative strength”.

The price of ads fell 16 per cent on slowing demand, according to David Wehner, chief financial officer, who noted the “the potential for an even more severe advertising industry contraction” in the future.

However, Mark Zuckerberg, Facebook’s chief executive, said that he had seen increasing numbers of small businesses make “a big push to get online and to do more selling online” given the pandemic, opening up advertising and ecommerce opportunities.

In addition, last week, the company launched video chat and livestream features to its apps in a belated dash to capitalise on the explosion in popularity of such tools at rivals Google and Zoom, as people socialise virtually during the pandemic. 

Facebook said it would not advertise on the new video services or use the data from video calls to inform later advertising, raising questions as to how the offer will be monetised. 

The company also trimmed its full-year forecast for expenses by at least $2bn, pointing to savings from the cancellation of travel, events and marketing, as well as slower headcount growth.

Earnings for the first quarter were $1.71 a share, broadly in line with analysts’ expectations as compiled by S&P Capital IQ. It declined to give revenue guidance for the second quarter, citing heightened uncertainty.

Facebook last week announced a $5.7bn investment for a 10 per cent stake in Indian telecoms group Reliance Jio. 

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