Facebook posts better than expected Q1 earnings as ad revenue soars

Facebook (FB) on Wednesday reported first quarter earnings that handily topped expectations, as political and regulatory crises continued to swirl around the leading social network, but were offset by A nearly 50% surge in advertising revenues.

Here’s a snapshot of key metrics expected versus analyst expectations, according to a Bloomberg consensus forecast of Wall Street analysts:

  • Revenue: $26.17 billion vs $23.72 billion estimated

  • Advertising revenue: $25.44 billion vs. $23.27 billion estimated

  • Earnings per share (Adjusted): $3.30 vs $2.61 expected

  • Daily Active Users (DAU): 1.88 billion vs 1.866.6 billion estimate

  • Monthly Active Users (MAU): 2.85 billion vs 2.830 billion estimated

Advertising, the fulcrum of Facebook's business model, jumped by 46% year over year, the company said, powered by a slow but steady rise in DAUs and MAUs.

"We had a strong quarter as we helped people stay connected and businesses grow," said Mark Zuckerberg, Facebook founder and CEO. "We will continue to invest aggressively to deliver new and meaningful experiences for years to come, including in newer areas like augmented and virtual reality, commerce, and the creator economy."

Facebook — which has posted three consecutive quarters of better-than-expected results— is one of a cohort of tech stocks that rallied throughout the COVID-19 crisis as a "stay at home" play that favored service companies whose models are constructed on e-commerce.

However, the slow return to normalcy has prompted Wall Street to weigh whether the forces that once favored Facebook and other tech companies are sustainable in the medium-term.

In its outlook, Facebook said it expects revenue growth to remain "stable, or modestly accelerate" in the current quarter — yet warned that the second half of the year would be characterized by growth rates that would "significantly decelerate...as we lap periods of increasingly strong growth."

The earnings results come a day after Facebook — along with Twitter (TWTR) and Alphabet (GOOG)— were grilled in a Senate hearing about how their platforms share and disseminate content that can be construed as false or misleading. The platform has been at the center of a roiling debate about how social media algorithms are contributing to a politically charged and polarizing environment.

Meanwhile, an increasingly fierce rivalry between Facebook and Apple (AAPL) has taken another turn, as the latter recently unveiled new technology that forces apps to ask users for permission to use their data. The fight has now entered the courts, with Facebook joining other companies in pursuing antitrust claims against the iPhone maker.

Apple's Identifiers for Advertising (IDFA) has become the latest flashpoint between the two tech titans, and has raised questions on Wall Street about whether the changes will impact Facebook's vast advertising war chest.

Facebook cited "increased ad targeting headwinds" this year as the IDFA takes root in Apple's latest software update, which the company expects to be felt in Q2.

"Our recent ad call suggests a modest, low-single digit IDFA impact on ad spend with FB having ample time to prepare and develop workarounds," analysts at Bank of America said recently. The bank rates Facebook's stock as a "Buy" with a price target of $358.

Yet in the medium term, "shopping remains a big focus, as FB's ability to improve ad conversion and monetize organic posts with shopping capabilities could help offset tougher [second half] revenue comps," BofA added.

Facebook's stock, which closed higher at $307.10 in Wednesday's session, popped by over 5% in after-hours trading.

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

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