Facebook follows Google, signalling online ad pain set to worsen
- Many of Facebook’s most popular features during the coronavirus crisis, like voice calling and direct messaging, are not major sources of revenue
- It posted an 18 per cent increase in first-quarter revenue, showing advertising demand was strong before the pandemic hit budgets
Facebook’s revenue held up better than expected in the early months of the Covid-19 pandemic. But the company warned that the worst of the slowdown in advertising spending is not over, raising the prospect of a bigger hit across the digital advertising market.
Chief financial officer Dave Wehner said the “potential for an even more severe advertising industry contraction”. His prediction is significant, given that Facebook accepts ads from all industries, and owns apps that now reach 3 billion people every month. There has been a particular drop-off in the travel and car industries, he said on Wednesday’s earnings call.
Mark Zuckerberg, Facebook’s chief executive, underlined the concern, saying that if shelter-in-place orders in the US end too soon, the economic fallout could be even more pronounced. “I worry that this could be worse than at least some people are predicting,” Zuckerberg said.
The warnings from the world’s largest social network echoed those heard in earlier calls from Google parent Alphabet and Snap: While the first quarter remained upbeat, the real impact could come in a few months. Alphabet chief financial officer Ruth Porat said the second quarter will be “difficult”, while Snap finance chief Derek Andersen last week spoke of “factors beyond our control”.
The comments from across the advertising-dependent part of the technology industry also portend the beginning of a trend – for the first time, an uptick in user attention to an app does not necessarily mean that ad growth will follow.
They also indicate the visibility these companies have into the broader economy, where advertising revenues are a leading indicator of optimism about the future.