The coronavirus pandemic is causing shock around the world. Many countries, including the United States, Italy, Spain, France, India, and others have asked people to stay home to slow down the rate of COVID-19 infection and help cope with it. As a result, many companies have suffered losses, and their revenues are close to zero. The Facebook social network feels some effect from these actions. The significant reduction in consumer travel, restaurant, and entertainment visits has forced many companies to reduce their marketing, and this will certainly have some impact on Facebook advertising revenue over the next few quarters. It's too early to say what effect this will have, but early forecasts from eMarketer suggest that the company's stocks will fall as a slowdown in digital advertising growth is being tracked for the industry as a whole. But it is a fact that digital advertising will continue to grow during the year following the resumption of normal activities. Facebook executives confirmed that the company is not monetizing many services where it sees increased activity, and also observed a weakening of the advertising business in countries that are taking aggressive measures to reduce the spread of COVID-19.
To solve the short-term problem, the company has a choice: either reduce the supply of ads to maintain the price of an ad or maintain the current level of availability of advertising slots and allow prices to fall. The latter option will have a side effect by preventing the user from being overwhelmed by ads, which may improve user engagement with social networking and enhance interaction with applications, in addition to maintaining the higher price of an ad. In any case, the average revenue per user is likely to decrease in the short term, as in general, lower revenues from advertising are distributed among a larger number of users. But at least Facebook has options to fix this. On the other hand, the need for social distance makes users look for alternative forms of communication. Many people turn to the internet and Facebook benefits from this trend. In Italy, for example, people spend 70% more time on their apps since the beginning of the crisis, and the time spent in group communication exceeds 10,000%.
Facebook has enough financial resources to manage the broader global recession. With $54 billion in cash and marketable securities, the company has a very reliable balance in case of any potential downturn. In false times like these, when liquidity is the most valuable instrument. Tech companies around the world are saving millions for a sudden economic downturn. For example, the car exchange platform tech startup Bird announced late last week that it is firing 30% of its employees (about 400 people). What's more, the whole business could be a potential target for acquisition because a lack of liquidity means that they will be looking for sources of income to stay in business. Perhaps that's why the news came out last week that Facebook is considering a multi-billion-dollar investment in Reliance Jio, India's telecommunications division of Reliance Industries. Negotiations for the deal have so far been suspended due to global travel bans.
The company, headed by Mark Zuckerberg, offers marketers a unique opportunity to communicate with individuals. Few other platforms can offer advertisers access to target groups as well as Facebook. This opportunity is valuable because it allows you to communicate with the desired consumer - target marketing without spending a budget showing ads, not to the target audience, which is less likely to be interested in the advertised product. Imagine the business value of knowing that every Sunday you like to take your family to lunch at a restaurant in your city. Now businesses in your area can send you ads hoping to get the privilege of serving you and your family. Besides, with more than 2 billion active monthly users around the world, Facebook's broad reach offers marketers a much larger audience for their ads. The coronavirus outbreak is creating uncertainty for a wide market audience right now. Facebook shares, like the entire market, have collapsed by 26%.
Now is a potentially good time for investors to start recruiting Facebook positions at a time when economic sentiment is pessimistic and the share price is trading at a "discount".