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Facebook Hits 2.6 Billion Monthly Users in Q1, Cites ‘Significant’ Ad Sales Drop Because of Coronavirus Crisis

Martin Meissner/AP/Shutterstock

Facebook said it saw “a significant reduction in the demand for advertising” over the last three weeks of the first quarter of 2020, although the social giant said that had stabilized in the first part of April.

Even so, the social giant reported a robust 18% increase in Q1 revenue, to $17.74 billion, and net income of $4.9 billion (or earnings per share of $1.71). Analysts had expected Facebook to post revenue of $17.48 billion and earnings of $1.74 per share.

The company said Facebook monthly active users increased by 10% year over year, to 2.6 billion worldwide — a gain of about 100 million in the quarter. However, it also said, “We expect that we will lose at least some of this increased engagement when various shelter-in-place restrictions are relaxed in the future.”

After the initial steep decrease in advertising revenue in March, “we have seen signs of stability reflected in the first three weeks of April, where advertising revenue has been approximately flat compared to the same period a year ago,” Facebook said. 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.”

Facebook declined to provide revenue guidance for the second quarter or full-year 2020. “Our business has been impacted by the COVID-19 pandemic and, like all companies, we are facing a period of unprecedented uncertainty in our business outlook,” the company said.

The ad pullback at the tail end of Q1 was “broad based,” but with a particular decline in travel and auto categories, CFO Dave Wehner said on the earnings call. Brand advertising spend also dropped, while Facebook saw “relative strength” in a few categories including gaming advertising, he added.

Shares of Facebook rose more than 10% in after-hours trading (after closing up 6% in regular trading), as investors evidently feared the COVID-19 damage was going to be worse.

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

Facebook daily active users (DAUs) were 1.73 billion on average for March 2020, up 11% year-over-year. The company’s monthly active users across the family of services — Facebook, Instagram and WhatsApp — also grew 11%, to 2.99 billion as of the end of March.

With more people than ever using its services, Facebook said it is working to make its apps more efficient and adding capacity, while also “prioritizing enhancements” in key services including real-time video experiences and live game-streaming.

Facebook said it has pledged over $300 million to date in COVID-19 relief efforts, including $100 million in grants and ad credits for small businesses and $100 million to support news organizations.

In 2020, Facebook is looking to hire at least 10,000 additional employees, but the company will “moderate some areas of our expense growth,” Zuckerberg said on the call. Facebook reported 48,268 employees as of the end of Q1. The continued investment in product development and hiring technical talent will decrease profit margins, he said.

“This economic pullback has certainly reinforced for me the importance of maintaining high margins,” Zuckerberg said. Facebook’s operating margin in Q1 was 33%, versus 42% in the fourth quarter of 2019.

Zuckerberg also expressed his concern that the COVID-19 crisis “will last longer than people are currently anticipating” and that reopening public places too soon will exacerbate the societal and business effects of the pandemic.