Facebook Shares Surge After Q1 Revenue Beat; Sees April Ad Sales Stability

After taking in March, Facebook said it's seeing stability in advertizing sales over the month of April, which have been largely flat compared to last year.

Facebook Inc  (FB) - Get Report shares surged higher Thursday after the social media group topped Wall Street revenue forecasts and noted that it was seeing some stabilization in ad markets over the month of April.

Facebook said total revenues for the three months ending in March rose 18% to a larger-than-expected tally of $17.7 billion, while ad sales were pegged 17% higher from last year at $17.44 billion. Facebook's bottom line of $1.71 per share was 6 cents shy of Street forecasts, and down 9.5% from the same period last year 

Lockdown orders around the world, which have affected an estimated 90% of the global economy, helped boost Facebook's daily active user count by 11%, to 1.73 billion, the company said. with monthly active users at 2.6 billion,

Facebook CEO Mark Zuckerberg, however, cautioned that some of that engagement will fall away once lockdown restrictions are eased, while his colleagues noted that "increasing uncertainty" in the business outlook means it won't be able to provide a revenue forecast for the current quarter. 

"There is a tremendous amount of macro uncertainty, so it's difficult to extrapolate performance based on a small sample of data," CEO David Wehner told investors on a conference call late Wednesday. "After initial steep decrease in ad revenue in March, we have seen signs of stability reflected in the first three weeks of April. Ad revenue has been approximately flat compared to the same period a year ago, down from the 17% year-over-year growth in the first quarter of 2020." 

"The April trends reflect weakness across all of our user geographies, as most of our major countries have had some sort of shelter-in-place guidelines in effect." he added. "We are understandably cautious given that most economists are forecasting a global GDP contraction in Q2, which if history where a guide, would suggest that the potential for an even more severe advertising industry contraction."

Facebook shares were marked 6.1% higher in early trading Thursday at $206.10 each, a move that would be one of the best single-session gains of the past two years and lift the stock into a modest 3.5% gain for the whole of 2020. 

Across the whole of Facebook's product suite -- which includes Instagram and the WhatsApp messaging service -- around 3 billion users were active each month during the first quarter, the company said, which may have contributed to the ad revenue stabilization it saw over the month of April.

Expenses, however, continue to rise as the company spends an increasing amount of cash on user security and keeping its main Facebook newsfeed free from harmful content. 

That said, Facebook said it expects total 2020 expenses to be in the region of $52 billion t $56 billion, up from $46.7 billion last year but down from its prior forecast of $54 billion to $59 billion.

"With engagement reaching record levels as (daily active user) and (monthly active user) growth reaccelerated across all regions and April MTD advertising revenue stabilized as Facebook invests across multiple opportunities -- though Zuckerberg was clear that he plans to manage the business to higher margins after things normalize -- we believe Facebook is well positioned to take share of ad budgets during and after COVID-19 and we reiterate our Market Outperform rating and raise our price target to $250 from $215 previously," said JMP Securities analyst Ronald Josey.