All signs point to a rough quarter for advertising, and Facebook likely won't be immune.
The world's biggest social network reports its full March quarter earnings on April 29, just a few weeks after warning investors that the coronavirus pandemic had "adversely affected" its business performance. Facebook (FB) - Get Report shares closed 2.7% higher on Friday to $190.07 after announcing a new group video calling feature, and have fallen about 7% year to date.
On average, analysts polled by FactSet are expecting $17.4 billion in revenue for the quarter and earnings per share of $1.75.
Here are a few themes to watch.
1. Advertising Trends
In a recession, ad spending is among the first things to fall. And as the second-largest digital ad platform in the world (second only to Google), we've already seen the evidence in plunging cost-per-click rates that marketers have pulled back spending on Facebook.
The question is how deep and extended any loss in ad revenue will be. Analysts have noted that the digital ad giants, namely Facebook and Google, are likely more insulated from COVID-related economic damage than are smaller platforms -- and advertisers could return fairly quickly to take advantage of lower prices.
But core Facebook is also falling in favor among advertisers, relative to other digital ad platforms, according to an RBC survey into purchase intent over the next year. Facebook's results and guidance will give a look into how its all-important ad revenue will hold up during and after the pandemic. Earlier this week, Raymond James analyst Aaron Kessler slashed his full-year revenue estimate for Facebook by 15%; likewise, Deutsche Bank's Lloyd Walmsley cut his Facebook price target by 29% to $200 on weakness in digital advertising.
2. Product Development
In March, Facebook told investors that people in countries hard-hit by the virus were flocking to its services. From a revenue standpoint, the problem was that the spikes were happening on WhatsApp, Messenger and video calls -- none of which are well-monetized.
Facebook may try to spin up new experiences to accommodate the demand -- and eventually, open up avenues to make money off of them. As one small example, Facebook finally created a desktop version of Messenger nine years after it was first introduced on mobile.
Emerging monetization efforts, such as payments and commerce within WhatsApp and Messenger, could also accelerate at Facebook during and after coronavirus. Along with first quarter results, expect Facebook management to touch on which of its products are seeing usage increases, and how it plans to leverage that new activity.
3. Operating Expenses
Like countless other companies right now, Facebook is in a brave new world of personnel management with most of its workforce of some 45,000 working remotely. Facebook's large-cap peer, Google (GOOGL) - Get Report, said recently that it will slow down hiring and re-evaluate a number of investments in light of coronavirus and related economic damage. Facebook could take similar measures.
In a recent note, JP Morgan analyst Doug Anmuth noted that the company could wind up spending much less than the $54 billion to $59 billion it originally meant to spend this year on operating expenses. And that could mitigate some of the damage to its bottom line from a pullback in ad revenue: "Given the current lockdown and virtual working arrangements, we believe it may be difficult for FB to hire as many new employees as expected and to ultimately spend that money. That should help offset some of the impact from a reduction in ad spend," Anmuth wrote.