The company says it’s seeing less money coming in from advertisers.
As people around the world are shut in their homes under lockdown, they’re using Facebook more than ever to share news, message their friends, and find entertaining distractions from the dullness of quarantine life.
But that doesn’t mean Facebook, or other social media companies like Twitter and Snap, are making more money.
On Wednesday, in Facebook’s first earnings statement since the pandemic hit, the company shared impressive statistics: Nearly 3 billion people now use at least one of Facebook’s apps (Facebook, Instagram, Messenger, or WhatsApp) each month, an 11 percent increase year over year and the highest it’s ever been. Facebook alone had 2.6 billion monthly active users, an increase of 10 percent year over year.
But financially, Facebook isn’t doing nearly so well.
While Facebook’s revenue was up overall by 18 percent year over year this past quarter, beating analysts’ expectations, much of that time period didn’t include the peak impact of the pandemic. Looking ahead, company executives said they’re bracing for a larger economic fallout. In the last few weeks of March, after global lockdowns began to take effect, the company said it saw a steep decline in the money it makes from advertising. These declines flattened out in April. Because of ongoing uncertainty related to the pandemic, the company declined to give its usual prediction of how much revenue it will make next quarter, and instead offered the snapshot of revenue in the past few weeks of April instead.
“There is a lot of uncertainty now about the world,” Facebook CEO Mark Zuckerberg said as he opened the quarterly earnings call. He admitted that the impact of Covid-19 on his business “has been significant.”
So why is Facebook expecting to make less money on advertising than before even as it gains more users? As my colleague Peter Kafka explained in March, as industries across the economy from tourism to real estate take a major financial hit, they’re in turn spending less to advertise on Facebook than they normally would. Many major brands have slashed marketing budgets for digital spending on platforms like Facebook. Facebook says advertisements coming from the auto and travel industry have been especially impacted, while other industries, like gaming, are relatively spending more.
This shift isn’t unique to Facebook. Twitter, Google, and virtually every other company whose main source of income comes from digital advertising are facing the same pressures.
“If you’re going to have a business which is primarily advertising, which is our plan for the long-term, you have to recognize that advertising is more volatile and sensitive to the macroeconomy,” said Zuckerberg on the earnings call.
Google’s parent company Alphabet announced on Tuesday that it has faced a significant downturn in advertisement revenues in March due to the pandemic, although not as bad as analysts expected. The search giant is reportedly planning to cut its marketing budget by half and slow down some hiring in order to tighten its belt.
But despite these short-term slowdowns for Facebook and Google, some argue that in the long run, the company, like the other major tech giants, could come out of this pandemic stronger. One of the biggest issues these companies previously faced pre-coronavirus was the threat of regulation. Now, the chorus of powerful voices calling to break up Big Tech has largely quieted, at least for now, as politicians face more imminent issues tied to the pandemic.
Another promising area for Facebook is in its gaming products and other hardware. It reported an 80 percent increase in its revenue from sources other than advertising, such as its Oculus Quest VR headsets and Portal video calling devices.
These advertising declines will also impact media companies that rely on Facebook and Google advertising for a large chunk of their revenue but don’t have the same enormous scale of business. Together, Facebook, Google, and Amazon make up an overwhelming majority of all US dollar spending on advertising.
Wednesday’s earnings from Facebook are another example of how widely popular Facebook is and how much people are using the tool during a global pandemic. They’re also a grim indication of how much the global economy is contracting. If these companies that make some of the most widely used tools in society are hurting, smaller companies will be especially hard hit in the face of a sustained global recession.
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