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Facebook stock spikes as strong Q1 earnings defy coronavirus crisis

Javier E. David
Editor focused on markets and the economy

Facebook (FB)’s stock on Thursday jumped 6% to its highest level in two months, a day after a solid earnings report demonstrated the platform’s advertising and social media clout amid an agonizing downturn.

As the coronavirus crisis plunges the world into a prolonged and uncertain period of economic retrenchment, Facebook reported that its quarterly advertising revenue that spiked 17% year over year and saw a big jump in active users. The company’s shares rallied above $200, the highest since late February and not shy off its 52-week high at $224.20.

Despite the turmoil in the global economy, the same restrictive lockdowns that brought a record U.S. expansion to a screeching halt are also boosting engagement on the Internet — which has been a boon to major tech companies like Amazon (AMZN) Microsoft (MSFT) and Google (GOOG), which also beat market expectations this week.

Here were the key results wall expected by Wall Street, according to a Bloomberg consensus forecast:

  • Diluted earnings per share: $1.71 vs $1.71 expected

  • Revenue: $17.74 billion vs. $17.3 billion expected

  • Ad revenue: $17.4 billion vs. $17.1 billion

  • Daily active users: 1.73 billion vs. 1.68 billion

  • Monthly active users: 2.68 billion vs. 2.34 billion expected

The platform’s strong quarter comes as CEO Mark Zuckerberg is said to have reasserted more direct operational control over the company he founded. For most of last year, Facebook came under increasing regulatory fire for data privacy concerns and its role being an arbiter of political advertisements. Zuckerberg has run point on the platform’s response to the COVID-19 pandemic, which has sickened over 3 million people worldwide.

Like its search counterpart Google, Facebook derives a significant chunk of its money from advertising, and as such is viewed as a proxy for the coming downturn in ad revenues as companies retrench. Also in line with its peers, Facebook is declining to provide forward looking guidance given the still-evolving coronavirus pandemic.

At the outset of the crisis, Facebook saw a “significant reduction in the demand for advertising,” but characterized the first three weeks of April as showing “signs of stability.”

The company added that “April trends reflect weakness across all of our user geographies as most of our major countries have had some sort of shelter-in-place guidelines in effect.”

Analysts at Bank of America, which maintains a “Buy” rating on the stock, wrote recently that the social platform was expected to keep showing strong utilization amid the pandemic, and that a range of new services would yield “material monetization opportunities ahead.”

Credit Suisse also rates the stock highly, as an “Outperform” given Facebook’s potential for surprisingly robust ad revenue, as it introduces new products like Instagram Checkout and a search option for Marketplaces.

“Street models are too conservative and underestimate the long-term monetization potential of other billion-user properties like Messenger and WhatsApp, optionality for faster [free cash flow] growth on greater efficiency on content screening/security costs,” the bank added.

Javier David is an editor for Yahoo Finance. Follow Javier on Twitter: @TeflonGeek

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