Facebook Inc. reported an 18% increase in first-quarter revenue, showing advertising demand was strong before the COVID-19 pandemic hit marketing budgets. The company also said business was steady in the first few weeks of April, sparking a surge in its shares.
The social networking company said sales came in at $17.7 billion in the first quarter, ahead of Wall Street estimates of $17.3 billion, according to data compiled by Bloomberg. The results include just a few weeks in March when coronavirus lockdowns began to hammer the economy.
On March 24, Facebook warned that its advertising business was “weakening.” The company does not issue revenue guidance, but said on Wednesday that revenue in the first three weeks of April was roughly in line with the same period a year earlier.
“After the initial steep decrease in advertising revenue in March, we have seen signs of stability,” the company said in a statement.
Facebook shares jumped more than 10% in extended trading. They closed at $194.19 in New York earlier.
The company’s services are being used a lot more as millions of people shelter in place and look for entertainment and ways to keep in touch online. Daily users of all Facebook’s apps, including Instagram and WhatsApp, averaged 2.36 billion in March, up from 2.26 billion in December, the company said. Facebook’s core social network now has 1.73 billion daily users, compared with 1.66 billion during the final month of 2019.
That spike will likely have less impact on Facebook’s business than in prior quarters. Many of the company’s most popular features during the pandemic — including voice calling and direct messaging — are not areas where the company makes significant revenue. Facebook also gets more than half of its sales from small businesses that are suffering from the COVID-19 lockdown and recession.
Some are optimistic, however, that the proliferation of the company’s messaging products will pay off in the near future, offering an alternative business to complement advertising. Facebook invested $5.7 billion in Indian telecom giant Jio Platforms earlier this month. The deal, which includes a strategic partnership, could bring WhatsApp business services and payments products to millions of Indian retailers.
“There is a silver lining for Facebook’s ad woes: a potential to diversify into payments and e-commerce sooner, leveraging engagement and new habits,” said Bloomberg Intelligence senior analyst Jitendra Waral.
Facebook forecast total expenses to be between $52 billion and $56 billion for the year, down from a previous range of $54 billion to $59 billion. The company said expenses will still grow in the face of expected revenue weakness, which will cut into operating profit margins in 2020.
Shelter-in-place orders are delaying construction projects, including data centers, temporarily lowering Facebook’s capital expenditure. “Given the strong engagement growth and related demands on our infrastructure, this year’s capex reduction should be viewed as a deferral into 2021 rather than savings,” Facebook said.