Facebook Earnings Preview: Social Media Amid Coronavirus; India Investment

With shelter-at-home orders in place around the world, many have turned to Facebook as an outlet for communicating with others. But investors will be more focused on how the surge in active users will help the company’s earnings.

https://tickertapecdn.tdameritrade.com/assets/images/pages/md/Facebook Earnings Q1
5 min read
Photo by Getty Images

Key Takeaways

  • Monthly user data expected to be higher amid lockdown
  • Ad revenues account for some 98.5% of global revenues

  • Facebook recently forked over $5.7 billion for a stake in India’s largest telecom provider

If Facebook (FB) was trying to throw a distraction at investors ahead of earnings this Wednesday, it might be hard-pressed to find a bigger bone than its $5.7 billion purchase last week of a piece of India’s Jio Platforms.

The buy gave FB a leading role among the minority investors, with a 10% chunk of Reliance Industries—the parent of India’s largest telecom operator, Reliance Jio Infocomm. It represents an important link into a huge market that FB might want to “friend.”

A Focus on the Future?

When FB reports after Wednesday’s close, many FB investors may be more interested to learn how FB fared in Q1, when many of its users were stuck in their homes. But the purchase—FB’s second-largest ever after its $22 billion mega acquisition of WhatsApp in 2014—is not about what happened in Q1 or even what’s happening in Q2. It’s about what might happen in quarters far ahead. FB obviously has the long-term in mind.

“In the face of the coronavirus, it is important that we both combat this global pandemic now, and lay the groundwork to help people and businesses in the years to come,” FB said in announcing what it called the “new collaboration.”

“One focus of our collaboration with Jio will be creating new ways for people and businesses to operate more effectively in the growing digital economy,” FB said. That’s key, considering the depth of India’s market combined with the strength of Reliance Jio Infocomm and its 380 million-strong subscriber base.

So there’s plenty on FB’s plate that investors might want to tune into for a broader view of what could be ahead in a world after COVID-19.

Ad Revenues + Pandemic = ?

That’s all well and good, but your average investor probably wants to know what’s going on in FB’s core business. Let’s start with advertising—or as budgets get cut at many companies, a potential cutback on advertising.  The world seems to be aggressively turning to FB and other social media platforms for information and entertainment—daily sharing of COVID-19 news, memes, and desperate pleas for schooling/childcare/boredom help. But they’re apparently not looking at much of the traditional advertising FB has had for travel, film, and the abundance of small businesses peddling their goods. Mostly because it’s not there.

No one is flying. No one is vacationing. No one is shopping in brick-and-mortar centers. No one is going to movie houses. And few are spending on your basic discretionary items during this cash-hoarding period and devastating unemployment.

Since FB’s ad revenue accounts for a good 98.5% of its total global revenue, what unfolds here in numbers and the data trajectory is arguably where the rubber hits the road. Typically, gains in monthly active users (MAU) are top of mind for many analysts—and will likely be to some extent this time around—but maybe not with the same oomph of prior quarters.

That might be because the MAU numbers matter most when the average revenues per user (ARPU) is tallied alongside it. But given the expected falloff in ad revenues, those ARPU numbers might not be very useful for Q1 and Q2. And at this point, there’s a lot of uncertainty about the future.

Jagged Falls and Climbs for FB Shares

Analysts, for the most part, appear to be getting more bearish each week. FB stock initially got pounded with nearly everyone else when the crisis hit, losing 35% of its value by mid-March from its late-January high.

Since then, FB’s 27% climb back has been a jagged one, with shares sometimes falling when analysts weigh in with fresh thoughts. Last week, for example, FB fell nearly 5% after analysts lowered price targets and took a knife to revenue estimates. Overall, since hitting that peak in January and taking that dive, FB shares are down about 17% this year.

FIGURE 1: IT’S ABOUT RELATIONSHIPS. Although social media company Facebook (FB–candlestick) has had some big range up and down movements since the coronavirus pandemic hit the stock markets, it was pretty much hand-in-hand with the Comms Services Sector ($IXC–blue line). Data sources: NASDAQ, S&P Dow Jones Indices. Prior to the stock market fall, FB was outperforming $IXC. Chart source: The thinkorswim® platform from TD Ameritrade. For illustrative purposes only. Past performance does not guarantee future results.

Management’s guidance for Q1 fell in a range of a 20% to 24% increase in ad flows, a slight pullback from Q4’s 25% performance. But that was before anyone had any idea the pandemic would put most of the world at a standstill.

Many analysts have been chopping ad revenue projections at every major social media outlet in recent weeks, slicing FB’s to about a 16.9% year-over-year gain for Q1. Maybe FB will book that, maybe not. Remember, much of the crisis didn’t really begin to surface in the U.S. until mid-March, which was most of the way through FB’s quarter.

That’s got Deutsche Bank analyst Lloyd Walmsley, for one, expecting weak trends at the end of Q1 but then the bottom falling out in Q2 before the start of an “uncertain recovery” in Q3 and into 2021.

For the quarter, analysts, on average, have shaved their projections of earnings per share to $1.75 on revenues of $17.5 billion.

A Rosy Future?

That’s partly why investors might want to turn their attention to what FB is projecting for Q2 and the rest of the year. Analysts, like Walmsley, look to be preparing for the worst with a Q2 total revenue estimate average of an anemic 5.8% gain.

That thinking might have gotten a boost after Snap (SNAP) turned in better-than-expected earnings last Wednesday but forecast a surreal quarter of deceleration. On a post-earnings release conference call, SNAP rattled off the rocky revenue growth: up 58% in January and February, then braking at a 25% clip in March, and skidding further in April.

While FB’s growth rate hasn’t been in 50%-plus for a while, it is a substantially larger company with a $530 billion market cap compared with SNAP’s $23.4 billion. And let’s not forget FB has a pretty comfortable cushion with that $54.8 billion cash and short-term investments on hand at the end of 2019. SNAP ended 2019 with $2.1 billion.

Even so, “We should expect to see negative ad revenue growth at Google and Facebook in 2Q,” Nathanson said.

Advertising is only one element, but considering it drives upwards of 98% of global revenue, it’s arguably the key. Analysts and CEOs alike have been consistently noting in recent weeks that this is an unprecedented economic blowout. It’s led many corporations, SNAP included, to pull guidance for the rest of the year all together, considering it’s all a wild guesstimate anyway. It wouldn’t be surprising to see FB also withhold any sort of financial forecasts.

No one has a crystal ball telling us when we get to the other side of this pandemic and what it might look like. Don’t bet FB knows, but consider tuning to what it hopes to see beyond COVID-19.

Facebook Earnings and Options Activity

When FB opens its books April 29, consensus from 3rd party analysts is for earnings of $1.75 per share on revenue of $17.52 billion—which would represent 16.2% growth vs. revenue in the year-ago quarter.

The options market has priced in an expected share price move of 6.1% in either direction around the earnings release, according to the Market Maker Move™ indicator on the thinkorswim® platform.

Looking at the May 1 options expiration, put activity has been highest at the 170 and 180 strikes, but more activity has been seen to the upside, with heavy volume at the 190- and 200-strike calls. The implied volatility sits at the 44th percentile as of Monday morning. 

Good Trading,

Helpful Educational Content and Programming

  • Check out all of our upcoming webcasts or watch one of the many archived ones, covering a wide range of topics from market commentary to portfolio planning basics to trading strategies for active investors. No matter your experience level, there’s something for everybody.
  • Looking to stay on top of the markets? Check out the TD Ameritrade Network, which is live programming that brings you market news and helps you hone your trading knowledge. And for the day’s hottest happenings, delivered right to your inbox, you can now subscribe to the daily Market Minute newsletter here

TD Ameritrade Network is brought to you by TD Ameritrade Media Productions Company. TD Ameritrade Media Productions Company and TD Ameritrade, Inc. are separate but affiliated subsidiaries of TD Ameritrade Holding Corporation. TD Ameritrade Media Productions Company is not a financial adviser, registered investment advisor, or broker-dealer.


Key Takeaways

  • Monthly user data expected to be higher amid lockdown
  • Ad revenues account for some 98.5% of global revenues

  • Facebook recently forked over $5.7 billion for a stake in India’s largest telecom provider

Related Videos

Call Us

Content intended for educational/informational purposes only. Not investment advice, or a recommendation of any security, strategy, or account type.

Be sure to understand all risks involved with each strategy, including commission costs, before attempting to place any trade. Clients must consider all relevant risk factors, including their own personal financial situations, before trading.

Probability analysis results from the Market Maker Move indicator are theoretical in nature, not guaranteed, and do not reflect any degree of certainty of an event occurring.

TD Ameritrade and all third parties mentioned are separate and unaffiliated companies, and are not responsible for each other’s policies or services.

Inclusion of specific security names in this commentary does not constitute a recommendation from TD Ameritrade to buy, sell, or hold.


Market volatility, volume, and system availability may delay account access and trade executions.

Past performance of a security or strategy does not guarantee future results or success.

Options are not suitable for all investors as the special risks inherent to options trading may expose investors to potentially rapid and substantial losses. Options trading subject to TD Ameritrade review and approval. Please read Characteristics and Risks of Standardized Options before investing in options.

Supporting documentation for any claims, comparisons, statistics, or other technical data will be supplied upon request.

This is not an offer or solicitation in any jurisdiction where we are not authorized to do business or where such offer or solicitation would be contrary to the local laws and regulations of that jurisdiction, including, but not limited to persons residing in Australia, Canada, Hong Kong, Japan, Saudi Arabia, Singapore, UK, and the countries of the European Union.

TD Ameritrade, Inc., member FINRA/SIPC. TD Ameritrade is a trademark jointly owned by TD Ameritrade IP Company, Inc. and The Toronto-Dominion Bank. © 2020 TD Ameritrade.

Scroll to Top