Analyst Note| Ali Mogharabi |
Facebook reported better-than-expected third-quarter results but provided a cautionary outlook for 2021. The firm is concerned that demand for direct response ads may weaken a bit during a recovery after an unexpected spike during the coronavirus pandemic. Additionally, Facebook management reiterated that changes to Apple’s identifier for advertisers could create headwinds. However, we believe management is being overly cautious, as an economic expansion will likely be accompanied by the startup of small businesses, which will mainly use direct response advertising. In our view, the pandemic and resulting e-commerce growth has increased the stickiness of Facebook, as smaller businesses have become more dependent on the platform for advertising and various tools (such as Facebook Shop and Business Suite) that the firm provides to help with digital transformation.