Google, Facebook, and Other Ad Platforms Not Immune to Coronavirus

March 10, 2020
Companies are tightening their budgets as the effects of COVID-19 hit global businesses across all sectors. 
Marketing dollars are often among the first on the chopping block — and even giants like Alphabet and Facebook are expected to feel its effects. 
"Traditionally, budget cuts affect all aspects of marketing," said Wil Danielson, acting head of revenue and client success at Nexstar Digital. "With our current COVID-19 situation, we anticipate a tightening of budgets." 
Needham analysts are warning that the coronavirus could affect ad spend on Alphabet's Google and Facebook. More than 60 percent of all digital advertising budgets go to the duopoly, according to eMarketer. Digital advertising tends to be cut first when advertising budgets shrink because spending is less firm, according to one advertising agency that asked to remain anonymous due to client privacy. Other mediums like television advertising have contractual obligations.
The agency noted said brands in obvious categories like travel are starting to cut back on ads. There is also a decrease in spending from other companies in less obvious verticals like cleaning supplies due to lack of product availability. 
Needham analyst Laura Martin decreased revenue estimates for Alphabet by $1 billion for the quarter ending in March and $3 billion for the quarter ending in June. Travel-related ads are Google's fourth most popular category of search ads. 
Needham analysts Laura Martin and Dan Medina also observed lower spending on travel, retail, consumer packaged goods, and entertainment advertising on Facebook, categories which make up 30 to 45 percent of its total revenue. In addition, six out of the 10 largest countries for advertising were coronavirus "hotspots." Needham cut Facebook's 2020 revenue estimate from $85.14 billion to $83.39 billion, saying the first half of the year would be affected by the health crisis. 
But, it might be the smaller to medium-sized publishers that will be hurt worse than Facebook ($FB), Amazon ($AMZN), Apple ($AAPL), Netflix ($NFLX); and Alphabet ($GOOG), or FAANG, Danielson pointed out. Smaller companies and "experimental budgets" have less scale and reach, and might not be considered as essential as larger advertising platforms. 
And as conferences, concerts and events like South by Southwest in Austin, Texas get canceled, experiential marketing firms will be hit hard as people continue to cancel in-person and large-scale meetups. 
Events include the 2020 Summer Olympics, which is slated to be held in Tokyo, Japan. The competitions are only scheduled to begin on July 24, but already Olympic-related events like the Tokyo 2020 Olympic torch lighting ceremony in Greece were closed to the public to prevent coronavirus spread. 
Comcast chairman and CEO Brian Roberts said at a press conference that NBCUniversal, which is the U.S. broadcaster for the Olympic games, is insured in case of any cancellations. While this may prevent losses, it won't create any profits if the games don't proceed. 
Traditionally, the Olympics have been an advertising juggernaut. NBCUniversal has already sold 90 percent of its Tokyo Olympics ad inventory for more than $1.25 billion, ahead of the total sales made during the entire Rio Olympics in 2016. 
"We try to anticipate for big events what might happen so that we're protected there, and we also have insurance for any expenses we make," Roberts said. "So there should be no losses should there not be an Olympics. There wouldn't be a profit this year. But again, we're optimistic the Olympics are going to happen."
However with more people avoiding close contact, direct-to-consumer and e-commerce business should be in demand, said Jed Meyer, managing director for North America at marketing and media consultancy Ebiquity. Staying at home should increase streaming entertainment consumption patterns, which should boost companies like Netflix, Hulu, and other over-the-top (OTT) content providers, he added. There may also be an increase in OTT and broadcast advertising opportunities, as more people watch television.
"While it is logical that some advertisers may reduce advertising budgets because of business uncertainties or supply chain issues, what may be different this time is that people will still be consuming things at home," Meyer explained. "They will be ordering products and services that can be delivered to them – which means that as marketers, you still want to send them messages about your products and services." 
But overall, advertising agencies feel marketers will take a wait-and-see approach. 
"Unfortunately, I think brands will limit budget until the country moves beyond COVID-19," Danielson said. 
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