Facebook (FB) believes engagement levels will drop once COVID-19 goes away

Shares of Facebook Inc. (NASDAQ: FB) have gained 28% in the past one month. The social media giant reported an 18% increase in total revenue for the first quarter of 2020 while profits more than doubled.

Facebook is one of the companies that has benefited from the stay-at-home trend brought on by the coronavirus outbreak. The pandemic has led to a spike in social media usage as people sitting at home look for options to stay engaged, connect with family and friends as well as look for updates on the current situation.

User growth and engagement

Facebook saw double-digit increases in its user metrics during the first quarter. Family daily active people, which measures the number of users who visited Facebook’s family of products (Facebook, Instagram, Messenger and WhatsApp) on a given day, increased 12% year-over-year. Family monthly active people increased 11%.

The company said there are currently over 3 billion people actively using its products each month and this includes 2.6 billion people using Facebook alone and over 2.3 billion people using at least one of its services every day.

Facebook saw an increase in usage across all its services, especially in markets that saw the heaviest impact from the virus. In several of these areas, messaging volume has increased over 50% while voice and video calling have more than doubled.

The company is also seeing good traction in live video with over 800 million daily actives engaging with livestreams across workout classes, concerts and more every day. However, Facebook believes that there will be a decline in the level of engagement once the pandemic subsides and people go back to their normal routines.

Ad revenue

Total ad revenue for the first quarter increased 17% to $17.4 billion. Facebook saw strength in advertising at the beginning of the quarter but from the second week of March, the pandemic impacted the business significantly.

Looking at the trends by vertical, the company witnessed strong growth in gaming as well as stability in technology and ecommerce due to the current shelter-in-place trends. During the last three weeks of March, the travel and auto verticals were hit the hardest. These trends have continued into the second quarter.

On a regional basis, ad revenue growth was strongest in Asia-Pacific at 21% followed by US & Canada, Europe, and Rest of World at 16% each. But Facebook is generating sales at lower prices due to the overall reduction in ad demand.

Jio investment

Facebook recently signed an agreement to invest approx. $5.7 billion into Jio Platforms in India. The company believes there is a massive opportunity to serve small businesses and enable commerce over the long term in India, which has the biggest Facebook and WhatsApp communities in the world.

Facebook hopes to immensely improve the shopping experience in the country by bringing together JioMart, Jio’s small business initiative to connect millions of shops across the region, and WhatsApp. Facebook sees significant growth potential here and also hinted that it might look at similar initiatives in other countries as well.

Outlook

Looking ahead, as advertisers continue to spend less and as the business performs below expectations, the company plans to reduce spending in certain areas such as travel and marketing, and also expects profit margins to decline during the year. Total expenses in 2020 are expected to be $52-56 billion, down from the prior range of $54-59 billion.

After the initial decrease in ad revenues in March, Facebook saw signs of stability during the first three weeks of April, where advertising revenue has been approx. flat versus the same period a year ago. The April trends reflect weakness across all geographies as most of the major countries had imposed shelter-in-place rules.

Facebook remains cautious as most economists are forecasting a contraction in global GDP in the second quarter which indicates the potential for a more severe advertising industry contraction.