3 Social Media Giants Feeling The Sting of Declining Ad Revenue

The digital world relies heavily on the use of advertising to fund its existence, particularly on social media platforms. Facebook (NASDAQ: FB) and Google (NASDAQ: GOOGL) make up more than half of global advertising spend, and before the pandemic broke out, their ad business had tripled in five years. But since the coronavirus, these companies have experienced a huge slump in ad revenue, along with a number of other social media giants.

Facebook

At the company's recent first-quarter earnings call it posted a steep decline in ad revenue for the month of March, but there was a bit of stabilization in the first three weeks of April. Revenue was up by 18% for the period, which is the slowest growth the social media platform has ever experienced. Advertising sales accounts for nearly all of Facebook's revenue, which jumped to $17.44 billion.

The social media company indicated that there was a slight increase in gaming ads and a consistent amount of spending from e-commerce and technology clients. This made up for some of the ad spending lost through travel and auto businesses. Since many people are in lockdown at home still there hasn't been a drop in the amount of monthly users, which rose from 2.89 billion to 2.99 billion this quarter.

However, the second-quarter could prove more challenging for Facebook as many businesses start to re-open. Many advertisers in different industries are cutting their marketing budgets as they attempt to survive the uncertain times. 

Twitter

This social media company experienced a huge spike in monetizable daily active users, recording 166 million at its recent earnings call, up 24% compared to the same time last year. This is the largest growth Twitter (NYSE: TWTR) has ever seen year-on-year and is likely the result of people being stuck indoors at home and seeking information about the unfolding coronavirus pandemic.

Despite the jump in user numbers, the stock fell more than 6% following the first-quarter earnings call as its advertising business took a hit. From mid-March this year, Twitter experienced a 27% drop in year-on-year ad revenue and it posted its first loss in three years. However, total advertising revenue for the quarter was up around $3 million compared to last year. Twitter makes almost 90% of its revenue from advertising so it is a big concern that companies might not have as much money to pump into marketing.

Pinterest

Pinterest's (NYSE: PINS) CEO Ben Silbermann said that as a number of businesses closed their physical stores, many advertisers slowed their spending. The social media giant noticed a big drop in sales in the middle of March, much like Twitter, as advertisers responded to the pandemic. While revenue for the platform dropped by 8% compared to its first-quarter a year prior.

Its monthly active users, or "pinners", jumped by 26% to a record 367 million during the first quarter of 2020. But the net loss for the company widened to $141.2 million for the quarter compared to just $41.4 million a year earlier. The social media company has withdrawn its full-year outlook as it faces increasing uncertainty because of the coronavirus and its effect on advertiser demand.

Can these social media platforms survive the pandemic?

Facebook is in a good financial position at the end of its quarterly results, with the company holding $60 billion in cash. While competitor Twitter holds some debt, it still has a net cash amount of $4.3 billion, which is about 19% of the company's market cap. Pinterest is the newest addition to the social media world out of the three, and currently has $1.7 billion in cash.

All three businesses have the potential to bounce back once economies return to normal. Facebook and Twitter are likely to come out stronger once companies have money to spend again, and are a good buy while their stocks are lower. Less ad revenue is a short-term danger for Pinterest, but user growth and new monetization options likely to lead to long-term success.

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