Facebook Shares Soar on Revenue Beat-Earnings Live Blog

Eric Jhonsa

Facebook FB shares rose sharply higher Wednesday after the social-media giant beat revenue estimates for the first quarter although its earnings fell short.

Facebook reported revenue of $17.74 billion versus analyst estimates of $17.33 billion, while EPS of $1.71 missed an estimate of $1.74 a share. Shares were rising 10.5% to $214.61 in after-hours trading.

TheStreet and RealMoney's tech columnist, Eric Jhonsa, is breaking down the company's earnings report due out after the close, and its call with analysts that's scheduled to begin at 5:00 p.m. ET.

Comments (79)
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Eric Jhonsa
Eric Jhonsa

Editor

Facebook's call has ended. Shares are up 9.7% after hours to $213.00 after Facebook posted mixed Q1 numbers (EPS missed, but revenue beat) and said that it has seen "signs of stabilization" for its ad business in April, with ad revenue roughly flat Y/Y.

Facebook also reported an acceleration in DAU/MAU growth rates for both its total "app family" as well as its core service and Messenger in particular. The company cut its 2020 cost/expense and capex guidance, while promising to continue investing aggressively in product R&D.

Thanks for joining us.

Eric Jhonsa
Eric Jhonsa

Editor

Question about the ad targeting and measurement headwinds that Facebook previously forecast it would see. And one about hiring efforts.

Wehner: Targeting/measurement headwinds are having an impact, but they're dwarfed by COVID-19's impact. We feel that we're well-positioned, we still have a lot of first-party data. But there is still some impact, and weaker targeting/measurement can also make things harder for businesses during this downturn.

Regarding hiring, Wehner says Facebook is still hiring a lot of engineers, but cutting down on hiring related to "business functions." Also cutting spend on travel, entertainment, etc.

Eric Jhonsa
Eric Jhonsa

Editor

On WhatsApp monetization, Zuck reiterates that it's early still early, while adding that there's still a large untapped opportunity. Notes tens of millions of businesses use WhatsApp, and that click-to-message news feed ads have done well.

Eric Jhonsa
Eric Jhonsa

Editor

Zuck: I think we'll see "a meaningful economic hit" during the period of the health emergency. Efficacy of shelter-in-place orders will determine how large the economic fallout is. I worry that this could be worse than what some people are predicting.

Eric Jhonsa
Eric Jhonsa

Editor

Question about e-commerce, and what moves Facebook could make to help address higher demand. Also one about Facebook's credit loss expectations.

Zuck: We are seeing increases in consumer e-commerce behavior. There's been "a big push to get online" among small businesses. Many businesses trying to sell online for first time, other businesses that were already online now trying to make it their primary channel. We're working on a lot of things to help them, hopefully will have more to share in coming weeks.

Wehner says Facebook's bad debt expense rose by $193M, and that it's tied to COVID-19's economic impact.

Eric Jhonsa
Eric Jhonsa

Editor

Question about Oculus' performance and Facebook's gaming efforts.

Zuck: We have a few areas of investment when it comes to gaming. Rolling out new mobile gaming solutions, and will keep investing there. The Oculus Quest headset has "surpassed expectations." VR has seen usage spikes lately.

Adds that (amid Quest headset shortages) he wishes Facebook could make more Quest headsets.

Eric Jhonsa
Eric Jhonsa

Editor

Question about how spending by large and small advertisers is respectively trending. Also one about margin expectations.

Wehner: We've seen a pullback from both large and small advertisers. Our business is quite diversified.

Zuck: During a period like this, there are a lot of things that need to get built. It's important to keep on building, even if there's a short-term margin hit.

Also says that a company that depends on ads such as Facebook has to stay mindful that ad spend will drop during economic downturns, and that it should try to maintain high margins during good times so that it can weather downturns well.

Eric Jhonsa
Eric Jhonsa

Editor

Question about ad auction and pricing dynamics.

Wehner: We have "very dynamic" content, so that when one vertical's ad spend weakens, another vertical can help fill the void. Direct response has long been a big part of our ad business, and has remained relatively strong. We've seen more of a falloff in brand advertising.

Eric Jhonsa
Eric Jhonsa

Editor

Question about WhatsApp features and the Jio partnership. Also one about how much news feed and Stories activity is growing.

Zuck: We're focused on helping small businesses have a presence on all of our apps and engage with people. Working on WhatsApp payments, click-to-message ads, etc. We think there will be an advertising payoff as we enable commerce experiences.

Regarding Jio, he says Facebook is "very excited" about working on solutions that can help the company reach Indian small businesses, and notes that India is WhatsApp's biggest market.

Regarding feed/Stories usage, Wehner calls attention to Facebook's 39% Q1 ad impression growth, and notes that was driven by higher feed and stories engagement.

Eric Jhonsa
Eric Jhonsa

Editor

First question is about how the ad business has trended in April relative to March. Also a question about SMB initiatives.

Wehner: We saw a pretty broad-based ad spend pullback in March. But saw relative strength even then in things like gaming, as companies took advantage of lower ad prices. E-commerce has shown signs of stability as well. But there haven't been major "vertical shifts" in April compared with March. Ads meant to drive "online conversion events" have held up well.

Sandberg: We've been building specialized products that we've never had before to support SMBs and help them move online. We offer "very personalized ads" that are often particularly valuable for small businesses that can't make giant media buys.

Eric Jhonsa
Eric Jhonsa

Editor

The Q&A session is starting.

Eric Jhonsa
Eric Jhonsa

Editor

Facebook is holding onto its post-earnings gains: Shares are up 10.2% after hours to $214.05.

Eric Jhonsa
Eric Jhonsa

Editor

Reiterates that Facebook has seen "signs of stability" for ad revenue in April, while adding that GDP forecasts raise the possibility of a more severe ad spending contraction.

Eric Jhonsa
Eric Jhonsa

Editor

He notes the dollar's appreciation is also a near-term headwind.

Eric Jhonsa
Eric Jhonsa

Editor

Wehner: We're facing a period of "unprecedented uncertainty" regarding our business outlook.

Eric Jhonsa
Eric Jhonsa

Editor

Headcount rose by over 3K Q/Q, with "technical functions" driving much of the growth.

Eric Jhonsa
Eric Jhonsa

Editor

Oculus VR headset sales were said to be the biggest driver behind Other revenue growth.

Eric Jhonsa
Eric Jhonsa

Editor

That compares with 31% impression growth and a 5% drop in price per ad in Q4.

Eric Jhonsa
Eric Jhonsa

Editor

Wehner: Ad impressions rose 39% Y/Y in Q1, while price per ad fell 16%

Eric Jhonsa
Eric Jhonsa

Editor

Wehner: We moved to a global work-from-home stance in early March. 95% of workers are now working from home. While we aren't operating at 100% capacity, we're still able to launch new products and work with business customers.

Eric Jhonsa
Eric Jhonsa

Editor

CFO Dave Wehner now talking.

Eric Jhonsa
Eric Jhonsa

Editor

She's now going over efforts to support various COVID-19 relief efforts for individuals and businesses.

Eric Jhonsa
Eric Jhonsa

Editor

Sandberg going over efforts such as supporting give card sales by businesses and supporting fundraising efforts and making it easy for restaurants to add food-delivery options.

Eric Jhonsa
Eric Jhonsa

Editor

Sandberg: People are looking for businesses on Facebook and Instagram more than usual during this crisis. Facebook still has a big opportunity to help businesses that aren't yet online to make the jump.

Eric Jhonsa
Eric Jhonsa

Editor

Sandberg: After a strong start to the quarter, we saw a strong impact from COVID-19 beginning in the second week of March. Some verticals, such as gaming and e-commerce, have held up well. Other verticals, such as travel and auto, have been hit hard.

Eric Jhonsa
Eric Jhonsa

Editor

COO Sheryl Sandberg now talking.

Eric Jhonsa
Eric Jhonsa

Editor

Zuck: I've always felt that during economic downturns, the right thing to do is keep investing. Since many companies will pull back on investments, we can help build the things that they were planning to.

Reiterates that Facebook plans to hire 10K people this year in product/engineering roles, while "moderating" spending in other areas such as travel and marketing.

Eric Jhonsa
Eric Jhonsa

Editor

Zuck: With so many physical stores closed, many businesses are looking to grow their digital presences. We're working with them, and will have a lot more to share about these efforts.

Eric Jhonsa
Eric Jhonsa

Editor

Says that over 800M users are engaging daily with live streams.

Eric Jhonsa
Eric Jhonsa

Editor

Following the recent Messenger Rooms launch, Zuckerberg asserts that Facebook wants to offer the best "social" services for video calls, video rooms and live-streaming.

Eric Jhonsa
Eric Jhonsa

Editor

Cautions that some of these usage spikes won't completely last. But adds that he also thinks Facebook is seeing an "acceleration" of existing trends towards the adoption of various services.

Eric Jhonsa
Eric Jhonsa

Editor

Adds that Facebook is adding data center capacity to support usage spikes when it can.

Eric Jhonsa
Eric Jhonsa

Editor

Zuck: We're seeing major increases in the use of our services. There are now over 3B people using them. Messaging volume has risen over 50%, and voice and video calling have more than doubled, in many hard-hit countries.

Eric Jhonsa
Eric Jhonsa

Editor

Says Facebook is also working with governments to share info that they can use to help allocate resources and determine when it's safe to reopen. Highlights partnerships with healthcare researchers.

Eric Jhonsa
Eric Jhonsa

Editor

Zuckerberg going over Facebook's COVID-19 efforts, including sharing relevant info to users and removing posts containing misinformation.

Eric Jhonsa
Eric Jhonsa

Editor

Zuck: I remain very concerned that this health emergency and its economic fallout will last longer than many are anticipating.

Expresses concern that reopening too early could lengthen outbreaks.

Eric Jhonsa
Eric Jhonsa

Editor

Mark Zuckerberg talking.

Eric Jhonsa
Eric Jhonsa

Editor

Facebook's IR chief is going over the company's safe-harbor statement.

Eric Jhonsa
Eric Jhonsa

Editor

And it's starting.

Eric Jhonsa
Eric Jhonsa

Editor

The earnings call should be starting any minute. Here's the webcast link.

Eric Jhonsa
Eric Jhonsa

Editor

Facebook's Q1 ad revenue by region. U.S./Canada was 48% of revenue, Europe was 24%, Asia-Pac was 19% and "Rest of World" was 9%.

Eric Jhonsa
Eric Jhonsa

Editor

After backing out the impact of FTC charges on Q1 and Q2 2019 margins, Facebook's operating margin fell to the lowest level seen in the last two years. Data center capex, R&D hires and content safety investments have all been near-term margin headwinds.

Eric Jhonsa
Eric Jhonsa

Editor

Boosting EPS a bit: Facebook had a 16% Q1 tax rate, down from 20% in Q4. The company is maintaining guidance for a high-teens 2020 tax rate.

Eric Jhonsa
Eric Jhonsa

Editor

As a reminder, Facebook's earnings call starts at 5PM ET. I'll be around to cover.

Eric Jhonsa
Eric Jhonsa

Editor

Free cash flow rose 37% Y/Y to $7.34B. In addition to 18% revenue growth, the fact that capex (can be lumpy from quarter to quarter) was down 8% Y/Y to $3.66B gave a lift to FCF.

Eric Jhonsa
Eric Jhonsa

Editor

Facebook ended Q1 with $60.3B in cash and no debt. The company notes that Q1 closed before it invested $5.7B in Indian mobile carrier Jio, and also before it paid its $5B FTC settlement.

Eric Jhonsa
Eric Jhonsa

Editor

Likely protecting Facebook's ad sales a bit: Compared with Google, the company has relatively low exposure to travel ad spend.

Eric Jhonsa
Eric Jhonsa

Editor

The comments about ad revenue being roughly flat Y/Y in April really seem to be going over well. On the whole, they're better than what Google shared about its current ad sales growth.

Eric Jhonsa
Eric Jhonsa

Editor

Facebook is now up 9.2% after hours to $212.00. Shares are now up 3% on the year.

Eric Jhonsa
Eric Jhonsa

Editor

Stock repurchases totaled $1.25B in Q1, down slightly from Q4's $1.3B and up from $613M in Q1 2019.


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