Facebook’s business is booming, thanks to worldwide shelter-in-place and quarantine orders due to the COVID-19 pandemic that have everyone using social networks and staring at screens far more than average.
The company, which reported first quarter earnings for 2020 on Wednesday, says “a record number of people” are using its services, primarily its Messenger and WhatsApp chat apps as well as Instagram. Last month, as the pandemic intensified, Facebook said it was seeing spikes of more than 50 percent on its messaging products and now logs about 700 million daily calls across Messenger and WhatsApp.
But the company knows its popularity is likely only temporary. And those products that are seeing spikes are not the ones Facebook can most easily monetize, as analytics chief Alex Schultz and engineering chief Jay Parikh admitted last month in an illuminating blog post.
“We don’t monetize many of the services where we’re seeing increased engagement, and we’ve seen a weakening in our ads business in countries taking aggressive actions to reduce the spread of COVID-19,” the duo wrote. “We’re just trying to keep the lights on over here,” Facebook CEO Mark Zuckerberg told The New York Times in an interview.
Combined with the pandemic’s effects on consumer buying habits and marketing budgets, both of which are expected to continue falling dramatically in the coming months, Facebook’s core advertising business may take a serious hit come next quarter.
Both Facebook and Google are the most dominant web advertising platforms in the industry, and yet some of the biggest spenders, including travel and dining-related websites and companies, are all slashing marketing spend during the coronavirus crisis. That will, over time, create big holes in both companies’ ad revenue, so long as the shelter-in-place orders remain in effect for large ad markets like the US and Europe.
“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,” reads the company’s forward-looking statement. “We expect our business performance will be impacted by issues beyond our control, including the duration and efficacy of shelter-in-place orders, the effectiveness of economic stimuli around the world, and the fluctuations of currencies relative to the US dollar.”
In particular, Facebook says it’s watching out for drops in engagement. “We expect that we will lose at least some of this increased engagement when various shelter-in-place restrictions are relaxed in the future.” It also starting feeling the downturn in the global advertising industry over the course of the last month. “We 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,” the company said.
For now, however, Facebook’s key numbers are looking good. The company reported revenue of $17.7 billion and profit of $4.9 billion, 18 percent and 102 percent jumps from this time last year, respectively. The number of people who log into Facebook daily jumped 11 percent from Q1 2019 to 1.7 billion, while the number of monthly active users increased by 10 percent to 2.6 billion.
The “Family daily active people” and “Family monthly active people” figures, both of which measure when a user has used at least one of Facebook’s various products in those time frames, both hit record highs of 2.4 billion and 3 billion, respectively.
Another bright spot is that Facebook’s non-ad business, including its Oculus virtual reality headsets and Portal family of video chat devices, is up 80 percent this quarter from a year ago, to nearly $300 million.
Something that jumped out to me in results: non-advertising revenue was up 80 percent year over year. People are buying Facebook + Oculus hardware https://t.co/FU1NJ4U7dQ— Casey Newton (@CaseyNewton) April 29, 2020
Facebook is also currently investing heavily in improving its messaging products to take advantage in the boom in video chatting, teleconferencing, and live-streaming. The company last week announced Messenger Rooms, a more robust version of its chat platform that will allow up to 50 people to join a video call. It also said it would double the capacity of WhatsApp video chatting from four people to eight, add video chatting to its dating platform, and add new live-streaming features to the main Facebook app and Instagram.
Despite Facebook’s warnings about the future, investors seem pleased with its present performance. The company’s stock is now up nearly 10 percent in after-hours trading.