Earnings Recaps
April 29, 2020

Facebook: 2020 Q1 Earnings

A recap of Facebook’s 2020 Q1 Earnings, including a summary of major talking points and key data from financial statements.

“For the first time ever, there are now more than 3 billion people actively using Facebook, Instagram, WhatsApp or Messenger each month.” – Mark Zuckerberg

 

Nearly 40% of the world’s population uses Facebook’s services on a monthly basis, and that is even higher if you exclude China, where the company doesn’t operate.  The global scale of the social network is obvious, but the diversification of their advertising base is becoming evident.  As the coronavirus spread across the world and quarantine orders put into effect, advertising swiftly declined as businesses of all sizes closed.  Facebook, with their large SMB client base, was severely impacted in the last few weeks of March, but have since been able to improve the performance.  Ad revenue in April has been flat, which a stark contrast to Google, who noted no further deterioration after their drop-off at the end of Q1.  Sectors, such as gaming and e-commerce, have benefited, as they focus more on direct response marketing and always-on campaigns.  As ad prices drop, and impressions rise due to increased engagement, there remains efficient opportunities for many of Facebook’s 8 million advertisers.  Furthermore, many businesses are increasing their digital presence and capabilities, which strengthens Facebook’s efforts into commerce.

Last week, Facebook invested $5.7B into Reliance Jio, a clear signal of their intent to build a strong position in India, its largest region in the world.  The strategy will focus on building out a mobile marketplace for small businesses across the country to connect with its 1.3 billion residents.  The entire transaction will flow through WhatsApp from advertising, to communication, to payment.  It’s been difficult for western companies like Amazon and Walmart to succeed in the region, so partnering with Reliance was necessary to jumpstart their efforts.  When it launched in 2016, Reliance disrupted the Indian wireless market, providing a 4G only network, and offering the lowest data rates in the world.  Their mission of connecting the country through mobile communication dovetails nicely with Facebook, and e-commerce will be a integral part of growing the network.

Facebook’s strong financial position ($7B FCF in Q1) allows them to make these type of investments to build new products that can grow the business over the long-term.  E-commerce is at the forefront, but they are also innovating more around video.  While Facebook Watch has constantly changed their strategy, with little success, user-generated video is accelerating as people are under stay-at-home orders.   Last week’s launch of Messenger Rooms is a direct competitor to Zoom, Houseparty Teams and other group video chat platforms that been in constant use.  This product was already in development, but they have been able to expedite its release to capture the high-demand.  More importantly, they are building new features around live streams that let creators charge admission for viewing the content.  This would be a big step for Facebook, who has always believed in a free product which can be accessible for everyone.  With live music on pause for the foreseeable future, this would be extremely beneficial to musicians, but many other users as well.  Live streaming has sky-rocketed over the past month on IGTV, YouTube, Twitch and other digital platforms, but monetization is scant, to non-existent, for the majority of users.  Gaming, one of the most popular live-streaming categories, should stand to benefit dramatically.  It’s no surprise then, that Facebook has created a separate Facebook Gaming app, that will focus on mobile live streaming and mobile Esports.

2020 Q1 FB 3
2020 Q1 FB 4
2020 Q1 FB 5
2020 Q1 FB 6

 

Read Last Quarter’s Earnings Recap (2019 Q4)