Like other social media and online companies, Facebook managed to see a growth in its revenues and daily users as governments around the world imposed shelter-at-home orders and lockdowns to mitigate the spread of the coronavirus pandemic. However, the social media giant warned that it could be seeing a massive slowdown in advertising revenue as companies tone down their spending to survive the economic downturn.
The company's chief financial officer, Dave Wehner, mentioned during Facebook's earnings call on Wednesday that it may be seeing a severe advertising industry contraction in the coming quarters. This will adversely affect the company earnings, given that it relies heavily on ads from all industries, which it serves to its more than 3 billion monthly users worldwide.
Mark Zuckerberg echoed the sentiments adding that even if the shelter-in-place orders will be lifted, the country will still suffer the economic fallout. The company's founder warned that the situation could be much worse than most people have predicted. Facebook's business has remained steady throughout April, with its shares more or less remaining at the same levels.
Facebook's warnings are similar to the sentiments stated by other online companies in their respective earnings calls. Google's parent company Alphabet stated that while its first-quarter revenues remained high, it expects to feel the real impact of the pandemic in the coming months. Alphabet chief financial officer, Ruth Porat, had stated that its second-quarter performance could be affected due to factors that are beyond the company's control.
Despite companies such as Facebook, Twitter, Google, Snap, and other online platform operators seeing a surge in usage, it will likely have less impact on their overall businesses given the expected cutting of advertising budgets across all industries. According to Facebook, its average daily users had surged to more than 2.36 billion in March across its various platforms. This was a marginal jump from the 2.26 daily users reported by the company in December.
Facebook mainly gets its earnings from ads posted by small businesses throughout its platform. With the pandemic now in full swing in the US, most of those businesses are struggling to keep afloat. Most have implemented drastic cost-cutting measures, and the first budgets likely to be cut will be for advertising. This will be bad news for Facebook and other companies that rely on ad revenue.
Companies such as Google will likely not be hit as hard given its more diversified business model. Having more than one source of income will serve as cushions for these companies as the global marketing budgets are expected to nosedive in the coming months.
