The global slowdown in the digital advertising market due to the Coronavirus pandemic, slows advertising revenue growth at Facebook
Facebook has posted a strong first quarter, but it is clear that the slowdown in the digital advertising arena is starting to be felt.
Like other tech firms, Facebook is starting to feel the squeeze of the global Coronavirus pandemic, but that said, its results still beat Wall Street expectations, leading to 7 percent share price rise in after-hours trading.
And despite the pandemic, Facebook is still spending. Last week it invested $5.7 billion in the digital unit (Jio Platforms) of Indian conglomerate Reliance Industries (a move that was its biggest acquisition since acquiring WhatsApp). Facebook has also recently launched a gaming streaming service to rival Twitch and YouTube.
On the financial side, Mark Zuckerberg’s outfit has posted a very healthy set of financial results considering the state of the global economy at the moment.
For the three months ending 31 March, Facebook posted a net profit up 102 percent at $4.9bn, from $2.4bn in the same year-ago quarter.
Revenues at the social networking giant also rose 18 percent to $17.7bn from $15bn a year earlier.
“Our work has always been about helping you stay connected with the people you care about,” said Mark Zuckerberg. “With people relying on our services more than ever, we’re focused on keeping people safe, informed and connected.”
He pointed out that Facebook is supporting the global health community’s work by ensuring “everyone has access to accurate information.” Facebook and other social networking platforms have been criticised previously for the spread of fake reports about the virus.
Zuckerberg also said that Facebook has committed over $300 million in investments to help the broader community during the crisis, including creating a $100 million grant program to help small businesses and investing $100 million to support the news industry.
The firm has also launched a Covid-19 information center on Facebook to provide real-time information, health and well-being tips, and the ability to offer and ask for help.
Drilling down in the performance metrics for the quarter, it seems that Facebook’s daily active users (DAU) grew 11 percent to 1.734 billion from 1.562 billion, no doubt helped by the enforced global lockdown of many populations.
Monthly active users (MAU) grew 10 percent to 2.6 billion from 2.4 billion.
But while Facebook’s results show it has so far weathered the Coronavirus storm and avoid a decline in advertising revenue so far,the next couple of months will be a test for the social networking giant, experts have cautioned.
“Even though daily active users growth increased during the pandemic, the stable 17 percent growth in advertising revenue is by far the lowest growth the company had experienced since 2011,” explained Kia Ling Teoh, senior research analyst (advertising and television media) at analyst and consultancy firm Omdia.
“Advertising is now 98 percent of Facebook’s revenues and the heavy reliance on advertising has made companies such as Facebook and Google more vulnerable to economic volatility,” said Ling Teoh.
“However, they have the advantage of being the dominant players in the market and will continue to retain market share during the crisis thanks to increased user engagement with their platforms and services,” said Ling Teoh.
“Omdia expects Facebook’s Q2 2020 advertising sales to be hit moderately by the impact of Covid-19, depending on how long the lockdown lasts and the speed of the economic recovery,” Ling Teoh concluded.