Udayavni Special

Digital-ad downturn may complicate life for Google, Facebook


PTI, Apr 28, 2020, 1:10 PM IST

Washington Demand for digital advertising is shriveling after a decade of explosive growth amid the pandemic-fueled downturn. That could complicate things for Google and Facebook, who for the first time may have to contend with revenues that are actually shrinking.

With consumers mostly at home and unemployment soaring, advertisers are slashing promotional spending in some cases, all the way to zero. For Google and Facebook, who together account for 70% of the U.S. market for digital ads, that so far has translated into tighter restraints on spending without the layoffs, pay cuts and furloughs that publishers and other industries have already imposed.

Google CEO Sundar Pichai has already told employees the company will curtail its hiring for the rest of the year and is considering deep cuts in its own marketing budget through 2020, according to internal communications obtained by CNBC that Google confirmed.

Facebook warned last month that its business was already being squeezed by the advertising downturn, although it didn’t provide details. In countries hard-hit by the pandemic, it said messaging traffic was up 50% while voice and video calling had doubled, but added that it doesn’t make money on many of those services and that ad business had weakened in those regions.

So far, however, it’s not clear how badly the tech giants might be hit. Some of the early clues are expected this week when Google’s corporate parent, Alphabet, and Facebook report their first-quarter financial results. But those results will only give a hint of the impact, given that the pandemic didn’t start to zap the global economy and ad budgets until late February.

That’s one reason analysts polled by FactSet are still predicting a 13% increase in Alphabet’s revenue from the same time last year and a 16% revenue increase in revenue for Facebook.

The real test will come in the current April-June quarter, where analysts currently project roughly flat revenue for both companies. That could prove optimistic, though, given that airlines, hotels, and other travel-related businesses typically spend heavily on marketing campaigns during the spring and summer.

With most travel frozen by the pandemic, Google and Facebook are likely to see huge sales declines unless the threat of COVID-19 subsides, said Edward Jones analyst David Heger.

The good news for Google and Facebook is that digital ad spending can ramp back up as quickly as it declines since it doesn’t require the upfront planning necessary with traditional media.

That means companies might boost digital campaigns at the first sign of recovery, said Tony DiResta, a Washington, D.C., attorney who helps small and large companies promote their brands.

Google, at least, has already been through this once as a public company. In the second quarter of 2009 during the Great Recession, its revenue growth slowed dramatically to just 3%, prompting it to reduce its workforce by about 400 employees during that year the only time the company has pared its payroll in its 21-year history.

Since then, Alphabet has added nearly 100,000 employees in a relentless expansion built upon Google’s Android mobile-phone software and other products it continued to develop during the previous downturn.

This recession may look quite different. Google, Facebook, and the overall digital market are far larger than they were back then and potentially less nimble.

The digital industry has posted double-digit annual growth for a decade and was on track to hit about $125 billion in 2019 revenue, based on information compiled by the Interactive Advertising Bureau, which hasn’t released final numbers for the year.

For 2020, Magna Research predicts that digital-ad sales growth will slow to 4%, but said revenues won’t shrink despite the tough times. Overall ad sales could fall by 3%, according to Magna, with a flurry of political spending this fall during the U.S. presidential election expected to ease the recession’s blow.

Some analysts believe the current downturn could leave the tech duopoly in an even stronger position once the global economy recovers. Both Google and Facebook have enormous cash reserves $120 billion for Alphabet, $55 billion for Facebook they can use to acquire other potentially attractive services that can’t survive the recession on their own, often for cheap.

Both Google and Facebook are in a good position,” said eMarketer analyst Nicole Perrin.

One sign of that buy-low strategy: Facebook last week invested $5.7 billion in India telecom giant Jio. The commitment underscored its resolve to expand into one of the world’s fastest-growing internet markets.

Meanwhile, social distancing and stay-at-home orders appear to have overridden privacy concerns about the companies’ services, which sparked a backlash over the way they vacuum up vast amounts of personal information. Both companies reporting rising usage.

“It’s like moths being drawn to a flame,” Heger said. People can’t seem to resist them.

Udayavani is now on Telegram. Click here to join our channel and stay updated with the latest news.

Top News

K’taka COVID-19 update: 1630 new cases, 1333 discharges, 19 deaths on Nov 24

Centre asks states to take steps to reopen medical colleges from or before Dec 1

New COVID-19 guidelines for states issued; to be effective from Dec 1

Siddaramaiah slams Yediyurappa govt over appointments to statutory bodies

More than 400 appear for online language test in Tulu script

Centre approves amalgamation of Lakshmi Vilas Bank with DBS Bank India Ltd

Govt to soon come out with model tenancy law



Related Articles More

Centre approves amalgamation of Lakshmi Vilas Bank with DBS Bank India Ltd

Sensex plunges 695 pts on profit-booking; Nifty drops below 12,900

Fee on money transfers for US, doesn’t apply to India: Google Pay

As COVID-19 cases spike, financial outlook for airlines dims

Sensex rallies over 300 pts to scale fresh peak in opening session; Nifty tops 13,100

MUST WATCH

Centuries-old Tuluva ritual of ‘Bhoomipuje Gaddekori’ still performed at Palthadi Village in Puttur

A bike rider dies in a lorry crash : The scene of the accident was captured on CCTV

Moodbidri: Four people drowned in Shambhavi river

1348 new vented dams in K’taka’s coastal districts: J.C. Madhu Swamy

Karavali gets introduced to Japanese ‘kokedama’ art

Latest Additions

Trade unions to go on nationwide strike on Nov 26

K’taka COVID-19 update: 1630 new cases, 1333 discharges, 19 deaths on Nov 24

Hubballi: Police crack murder case within 24 hours; 2 arrested

Iran diplomat on trial in France over plot to bomb opponents

Cabinet approves MoU between BRICS nations on sports and physical culture

Thanks for visiting Udayavani

You seem to have an Ad Blocker on.
To continue reading, please turn it off or whitelist Udayavani.