Facebook Posts Floundering Financials: Lowest growth since the company’s IPO launch

June 8, 2020

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3 min read

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What's going on here?

In the face of the global pandemic, Facebook announced its financial results for the first fiscal quarter of 2020, recording the company’s lowest quarterly growth since going public in 2012.

What does this mean?

The report of a 18% rise in revenue marks Facebook’s lowest growth rate as a publicly listed company. It stated that there had been a “significant reduction” in demand for advertisements in the last weeks of March. This led to a drop in digital advertising prices which impacted the company’s revenue earnings, amongst other factors.  

Given the drastic fall in economic activity globally at the end of the quarter (largely triggered by worldwide efforts to combat COVID-19), it is no surprise that the poor economic climate had a direct effect on the social media platform, which relies heavily on advertising revenue to turn a profit. As companies around the world continue to downsize their operations and more small to medium enterprises are forced out of business altogether, spending on marketing has declined dramatically.

What's the big picture effect?

Despite the impact of COVID-19 on the tech giant, it is nevertheless important to recognise that Facebook still outdid market expectations. This sentiment was largely manifested in the 10% rise of Facebook’s share prices within hours of the company’s report; demonstrating the faith investors have in the corporation’s future growth and the viability of its business model. It also bears remembering that it was ultimately going to become more and more difficult for Facebook to maintain the same rates of stratospheric growth it once had as a startup. The onset of COVID-19 predictably exacerbated this financial slowdown, but one could argue that this lower growth rate was inevitable for the company.

At present, it is potentially too soon to assess the repercussions COVID-19 has had on Facebook but Zuckerberg admitted that the virus’ impact had been “significant”. Digital advertising remains the corporation’s largest source of revenue and the pandemic’s long term effects on business activity globally could have a large impact on Facebook’s primary income source. While the conglomerate hopes to remedy this through savings on operation costs, analysis has shown that the downturn in key industries such as the retail, automobile and travel sectors has led to a further drop in demand for advertising that is unlikely to pick up in the near future. This is reflected in the fact that Facebook’s advertising revenue was flat for the better part of April, hinting at greater difficulties for the next financial quarter.  

Arguably, this illustrates the reality that even companies like Facebook must take on substantive long term efforts to diversify revenue in order to mitigate the pandemic’s negative repercussions. Facebook’s ability to secure user engagement remains unparalleled, with 1.73bn daily active users in March and 2.99bn people using one of the company’s platforms (i.e. Facebook, Messenger, Whatsapp and Instagram) at least once a month in March. Although engagement is not directly monetisable, this colossal user base presents Facebook with an unprecedented opportunity to establish new sources of revenue. New services such as Messenger Rooms are indicative of the tech giant’s efforts to tap into the increased demand for video conferencing. Zuckerberg’s reassurance that Facebook will “keep on building and keep on investing” suggests that there are long term plans in place to safeguard the corporation’s sustainability. The unpredictable effects of COVID-19 will mean these plans are embarked on cautiously, if at all.

Report written by Debra Lim

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