In an investor guidance released by Facebook today, the company has warned investors and the market as a whole, of declining advertising revenues even though user engagement continues to soar. The company said, that while the pandemic has resulted in people engaging on the platform more than ever before, businesses are pulling back from spending on online advertising.
As more countries have moved into lockdown, internet usage and the usage of online communication tools has skyrocketed to an extent, that it has pushed the company to take measures to reduce strain on its services. In the most affected areas, Facebook has recorded an increase of 50% in the usage of the messaging tools of the company. Italy, which currently houses a populace quarantined with strict restrictions, has recorded an increase of 1000% with respect to group video calls involving three or more people. The overall usage of Facebook applications including Instagram and WhatsApp has gone up by 70% in the hard-hit country.
But that soaring engagement hasn’t really translated to advertising revenue, which gets Facebook almost all of its revenue. “At the same time, 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,” the company said in a statement.
The uncertainties associated with the market as coronavirus puts most of the economy into hot water, has led to pullback of companies from advertisement and marketing related spending. Unlike television ads which have to be booked and cancelled months in advance, online ads can be cancelled within hours/days. This makes it a cake walk for companies to cancel ads on platforms like Facebook. With a reduced number of advertisers competing for space on the platform, each impression will be valued less across the board unless the company cuts back on the number of displayed ads.
Apart from issuing a revenue shortfall warning, Facebook also talked about the difficulties in managing sudden engagement spikes across all its platforms, specially in an event such as this outbreak.
“Maintaining stability throughout these spikes in usage is more challenging than usual now that most of our employees are working from home. We are working to keep our apps running smoothly while also prioritizing features such as our COVID-19 Information Center on Facebook as well as the World Health Organization’s Health Alert on WhatsApp.”, the company added.
