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Coronavirus Hits Ad Sales of Facebook, Twitter and Others

Zacks Equity Research

The coronavirus pandemic and the ensuing slump in economic activity is crushing several industries and media and advertising is no exception.

On Mar 12, EMarketer lowered its 2020 global ad spend forecast, revising estimates down from $712 billion to $691.7 billion due to the coronavirus pandemic’s effect on media and commerce.

Moreover, per a Reuters report, which cited an analyst at MoffettNathanson, the ad industry in the United States could see nearly $26 billion in lost revenues or a 10.6% decline year over year as companies including online travel agents, automakers, restaurants and retailers are widely expected to slash marketing budgets.

Notably, while TV ad commitments are contractually fixed in the near term, digital ad spending is more flexible for ad clients, meaning it’s easier to modify or discontinue contract term for ads purchased from online platforms such as Alphabet’s GOOGL Google division, Twitter TWTR, Amazon AMZN and Facebook FB.

Since small businesses that primarily uses these platforms, are likely to curb ad spending as a contingent measure to cope with coronavirus-led crisis, ad-revenues of these tech companies are at risk.

Year-to-Date Performance


Coronavirus-Led Ad-Budget Cuts

Advertisers who are directly involved in production are expected to reduce digital ad spending to offset the financial impact of global supply chain issues caused by regional shutdowns over coronavirus.

Additionally, some are also hesitant to advertise alongside coronavirus discussions in social media platform for fear of associating their brands with the sensitive topic.

Moreover, many small advertisers are expected to have tightened marketing budgets to conserve cash because of virus-related uncertainty.

Such budget cuts have direct implications on revenues generated from ad sales on digital platforms, which is expected to decline in 2020.

Ad Sales Drop to Hit These Companies

The need for quarantine and travel barriers due to COVID-19-driven panic has led to an increase in Internet usage to let people work from home, attend school remotely and keep in touch despite social distancing.

However, in spite of increased user engagement correlating with the COVID-19 pandemic, ad sales are expected to decline.

Let’s delve deeper to find out which companies are likely to get adversely impacted due to declining ad-sales.

Facebook has admitted that its ad business has been affected in countries severely hit by the novel coronavirus while non-business engagement like messaging has exploded, which is affecting its services like Messenger and WhatsApp.

In many of the countries hit hardest by the virus, total messaging has increased more than 50% over the last month, Facebook said. In those countries, voice and video calling on Messenger and WhatsApp has more than doubled.  

The Zacks Rank #3 (Hold) company’s ad revenues are expected to decline due to lower spending in travel, retail, consumer packaged goods and entertainment. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Facebook estimates that more than 140 million businesses, mostly small businesses, use its services on a monthly basis.

Per The Street report, analysis of 2.4 million Facebook posts between December and March, suggested that average cost-per-click in North America fell from 64 cents to 32 cents in that time frame, according to Socialbakers.

Other regions, such as Western Europe, saw a similar drop as the virus triggered business closures and stay-at-home orders.

Notably, Facebook has banned ads on its platforms that mention coronavirus in relation to cures or prevention, or those that attempt to create a sense of urgency about the outbreak for commercial gains.

Twitter’s daily usage has jumped by 23% year over year. However, the company’s revenues may have dropped in March as advertisers cut back on spending.

On Mar 23, this Zacks Rank #3 company announced the withdrawal of its revenue and operating income guidance for the first quarter of 2020 due to the growing impact of COVID-19 on the global operating and economic environment and its effect on advertiser demand. (Read More:Twitter Joins Tech Club to Ditch Q1 View on Coronavirus Woes)

Meanwhile, Google is expected to witness decline in travel ad revenues in the first quarter of 2020. Online travel industry accounts for about 10% to 15% of this Zacks Rank #3 company’s ad revenues, with Booking Holdings and Expedia accounting for about 3% each.

Expedia and Booking Holdings each spend hundreds of millions of dollars a year marketing on Google, but these online travel agents have been hammered by the abrupt halt in flights, business trips and vacations.

Meanwhile, Amazon recently drastically cut the amount it spends on Google ads. The online retailer is one of Google’s largest ad buyers, usually snapping up product listing ads to lure web shoppers to Amazon.

The Zacks Rank #3 company may see more immediate effects from such an advertising pullback, especially among its many smaller third-party sellers that operate with smaller budgets.

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