Facebook Shares Lifted by ‘Signs of Stability’ in Ad Revenue

Facebook Inc.’s (FB) shares surged after the social media giant said it saw “signs of stability” in advertising revenue in the first three weeks of April and quarterly revenue came in above analysts’ estimates.

Shares rose as much as 10% in after-hours U.S. trading as the company said that advertising revenue was flat in the first three weeks of April following a steep decline in March. Total revenue in the first quarter increased 18% to $17.74 billion and above analyst’s estimates of $17.33 billion. Advertising sales rose to $17.44 billion from $14.91 billion a year earlier.

“We experienced a significant reduction in the demand for advertising, as well as a related decline in the pricing of our ads, over the last three weeks of the first quarter of 2020,” Facebook said in a statement. “We have seen signs of stability reflected in the first three weeks of April, where advertising revenue has been approximately flat compared to the same period a year ago.”

However, Facebook said that because of the increasing uncertainty of its business outlook, it is not providing revenue guidance for the second quarter or full-year 2020.

The company has benefited from booming demand for remote social interaction as the coronavirus-related lockdowns have kept users stranded at home. For the first time ever, there are now more than 3 billion people actively using Facebook, Instagram, WhatsApp or Messenger each month, the company reported. That includes 2.6 billion people using Facebook alone, and more than 2.3 billion people using at least one of the company’s other applications every day.

Facebook added that in many of the places hardest hit by the virus, messaging volume has increased more than 50%, and voice and video calling have more than doubled across Messenger and WhatsApp.

“I don’t expect this exact spike in usage will sustain over a longer period of time,” Facebook’s Chief Executive Officer Mark Zuckerberg said. “But in some areas, I think we’re seeing an acceleration in preexisting long-term trends – like the dramatic increase in online private social communication – that is likely to continue.”

Zuckerberg added that Facebook plans to hire at least 10,000 more workers in product and engineering roles this year, while he expects profit margins to decline in view of continued investments.

The social media network expects operational expense savings in certain areas such as travel, events, and marketing, but it is also planning to make investments of over $300 million. As a result total expenses in 2020 are estimated to be in a range of $52-56 billion, down from the prior range of $54-59 billion. Although the numbers represent a moderate decline in the planned growth rate of total expenses, the overall expense growth in the face of expected revenue weakness will have a negative impact on 2020 operating margins, the company said.

For 2020, Facebook lowered its capital expenditures range to $14-16 billion, from the prior range of $17-19 billion.

Wedbush analyst Michael Pachter reiterated his Buy rating on the stock with a $250 price target but noted that much of the share gain in the near-term was mostly priced in.

Overall, Wall Street analysts have a bullish call on Facebook shares. Twenty-nine out of 32 analysts have a Buy recommendation on the stock with the remainder split between 2 Holds and 1 Sell adding up to a Strong Buy consensus rating. The average price target of $215.96 implies a potential gain of 11% in the coming 12 months. (See Facebook stock analysis on TipRanks).

As of March 31, cash and cash equivalents and marketable securities amounted to $60.29 billion, the company said. Headcount was 48,268 during the quarter, representing an increase of 28% year-over-year.

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