Facebook could be poised for a decline in ad sales

This will be a busy and important week in the US for data and earnings, but today’s slate is rather quiet with just CB Consumer Confidence. Earnings includes Facebook, Microsoft, Mastercard, Tesla, Qualcomm, Boeing and Ebay all in a single day . Hence as we are in the midst of Earning Season, the focus turns to three tech giant Facebook  and Microsoft and their first Quarter earnings release for 2020 after tomorrow’s closing bell on Wall Street.

Facebook’s consensus recommendation is “Hold”, corresponding to the majority of the consensus recommendation for the Online Services peer group. According to Zacks Investment Research, the social network giant is expected to have $2.57 in earnings per share during the first Quarter of 2020, which represents an incline of about 1.59% since the reported EPS for the fiscal Quarter ending March 2019. For the previous quarter, the company was expected to post earnings of $1.91 per share and it actually produced earnings of $2.12 per share, delivering a surprise of 10.99%.  Revenue is expected to be released 14.7% up from previous quarter.

Similar to the rest of the tech giants, and to Alphabet report posted yesterday, Facebook earning’s report could provide a timely view into Facebook’s business and the impact of COVID-19 on advertising spend.

Last month, Facebook announced  a contradictory statement, stating that it is experiencing a massive spike in usage in areas most affected by the pandemic including Messenger, Instagram and Whatsapp , but at the same time  warned of weak advertising revenues due to the lock-down in businesses globally. Total messaging increased more than 50% in March while voice and video calling more than doubled on Messenger and WhatsApp in many of the countries hit hardest by the virus.  For instance, time spent across Facebook’s apps jumped by roughly 70% since the beginning of the coronavirus outbreak in Italy, which is one of the worst affected countries.

In order to tap the booming demand for video conferencing triggered by the coronavirus outbreak, Facebook launched a videoconferencing tool, which allows users to host video calls of up to 50 people. The tool will be rolled out gradually. The social media giant also unveiled other video-calling and livestreaming features for a newly developed platform on Messenger, called Messenger Rooms. In particular, the company expanded WhatsApp group video and voice calls to allow up to eight people from four previously and will introduce video chats on Facebook Dating in the coming months.

If we turn to the FX market, Facebook is a part of both the USA500 and USA30 indices. Hence despite the boost in demand, the hit on advertising sector for Facebook will be the key element to be watch on tomorrows report. It is worth noting here that 98.5% of Facebook’s 2019 revenues came in from advertisements.

According to Facebook management  “our business is being adversely affected like so many others around the world. We don’t monetize many of the services where we’re seeing increased engagement, and we’ve seen a weakening in our ads business in countries taking aggressive actions to reduce the spread of COVID-19.”