Coronavirus Set to Hurt Ad Sales: What's Next for Facebook (FB) Stock?

Facebook (NASDAQ:FB) FB and its various globally popular social media and digital commutation platforms might seem tailor-made to succeed during the coronavirus economy that has put a halt to a ton of business activity. And FB shares have largely tracked the S&P 500’s movement in 2020, unlike fellow tech giants Apple AAPL and Microsoft MSFT.

The question now is how much will Facebook, which makes practically all of its money from advertisements, suffer as more businesses temporarily close and or pull back on ad spending?

Facebook’s Business Model is Simple

Nearly 99% of Facebook’s 2019 revenue came from advertising across its various family of offerings, which today includes its namesake social media platform, Instagram, WhatsApp, and Messenger. The company topped our Q4 fiscal 2019 earnings and revenue estimates in late January, with fourth quarter sales up 25% and full-year revenue up 27% to $70.70 billion.

Facebook has been able to expand, despite all of its setbacks—which includes a historic $5 billion FTC fine, because of its ability to reach billions of people as traditional print advertising and TV ad spending shrink. In fact, digital advertising is expected to climb from 46% of the total global ad market in 2018 to 60.5% by 2023, according to eMarketer.

In the age of subscription-based models such as Netflix (NASDAQ:NFLX) NFLX, Disney+ DIS, and many more, Facebook will likely remain crucial. Facebook’s daily active users grew 9% in the fourth quarter to hit 1.66 billion, with MAUs up 8% to 2.50 billion. Meanwhile, Mark Zuckerberg’s firm noted that its “family monthly active people” figure jumped 9% to a whopping 2.89 billion as of December 31, 2019.

Facebook is working to expand its business model. These efforts include an e-commerce push, through its eBay-style EBAY challenger Facebook Marketplace. FB has also bolstered its streaming and live video unit, as it dives deeper into augmented reality and more.

Coronavirus Growth Outlook

The nearby chart helps investors see how much Facebook’s sales have continued to grow. But of course, its days of insane 50% year over year growth are likely gone for good, and we have already seen a rather significant slowdown in recent years.

FB’s fiscal 2017 sales jumped 47%, after climbing 54% in 2016. Then its fiscal 2018 revenue popped over 37%. We already touched on the fact that its 2019 sales expanded by 27%, which looks much worse by these lofty comparisons. And Facebook’s 2020 revenue growth looks as though it might come in shockingly low against these historic growth standards.

Cowen & Co. analysts estimated last month that Facebook and Google GOOGL could together see more than $44 billion in worldwide ad revenue disappear in 2020. The reasoning is pretty simple: everything from small business spending to big-budget movie ads have slowly died down as the coronavirus stalls a large chunk of the global economy.

With this in mind, our current Zacks estimates call for Facebook’s fiscal 2020 revenue to climb just 10.9% to reach $78.43 billion. This looks rough by comparison and is down big from our pre-Q4 release estimate that projected Facebook’s fiscal 2020 sales would climb nearly 22%.

On the bottom line, FB’s adjusted fiscal 2020 earnings are still projected to pop 18.5% to come in at $7.62 a share. Despite the expected growth, we can see that Facebook’s FY20 EPS estimate has slipped roughly 18% in the last 60 days from $9.28 to its current estimate.

Bottom Line

People around the world are using Facebook’s various platforms more than ever to communicate and connect while they are stuck inside. But the company’s ad-based model is set to take a solid hit during the coronavirus.

Facebook is currently a Zacks Rank #3 (Hold) that has underperformed AAPL, MSFT, and many other tech powers over the last year. FB stock is down around 14% in 2020 and it still sits 21% below its 52-week highs despite its recent jump. Therefore, the stock could continue to run if the market is able to keep up its recent climb.

Facebook just announced that it is set to release its Q1 fiscal 2020 financial results after market closes on Wednesday, April 29.

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