Where Do These Global Companies Stand At The End Of Q1: Performance, Insights, And Statistics
We bring you insights and earning calls on various media companies, publishers, agencies, brands, and tech companies performing on a quarterly basis. The iteration focuses on media companies’ financial performance in the 2020 first quarter and taps all the vital data.
Q1 2020 earnings and performance
Though the waters are choppy ahead, we are optimistic that the worst is behind us and have learned to live with the new normal. Consumer habits are changing and the future is more accelerated towards the digital economy. The media landscape has changed especially the TV front and the focus is on opening businesses again with advertising driving the demand.
Q2 Outlook
Q2 advertising for publishers is estimated to be significantly down as much as 25-30% Y-o-Y and for some even 50-55% down. Few companies like Facebook, Snap, Dotdash expects Q2 revenue to be flat or slightly up Y-o-Y. Here are a few key points to consider:
- Google revenue declines by 15% year- over -year, though search activity increased. Advertising spends decreased due to coronavirus recession. However, other advertising mediums are growing like connected TV, ads in video games, or ads in video conferencing.
- International TV ad sales are down by 30-35% Y-o-Y whereas programmatic revenue decreased by 40-45%.
- Performance ads are down year-over-year and demand from industries like restaurants, travel, retail, auto, and luxury has declined.
- Some advertisers seek opportunities and increase spending in financial services, insurance, telecom, technology, streaming services, and app downloads. Gaming and streaming are gaining a strong foothold and permanently taking a share of our time and wallets.
- CPM’s down by almost 50% giving an advantage to advertisers for huge bargains. New and existing advertisers are looking to acquire new customers at a lifetime low value.
- With no new live events expected on TV till September/October, it will boost the growth of CTV.
- Attribution for marketers is easy as most sales are online than in-store. The animation is expected to be robust in Q3 and Q4.
- 90-95% workforce for media companies are operating from home and CMO’s can justify spending using data-driven advertising with trackable ROAS.
Let’s take a look at the financial report card of the global giants.
The Trade Desk
The opening remarks from the trade desks on the present scenario are as follows – Programmatic’s greatest feature is ‘Agility’. One can easily start and stop the programmatic campaigns, unlike linear television. Early April witnesses advertisers stopped/pause ad spend in certain verticals especially travel and remained active in health, technology, games, home, and garden.
However, by mid-April year-over-year spend decline stabilized, and as the month progressed things started improving. Advertisers were trying to adapt to the present environment. For instance, restaurants changed their messaging to “We are open” or “We deliver.” Consumer products focused on pantry loading and travel companies planned to waive off cancellation fees for bookings. Basically, advertisers started to strategize on how to run businesses on the other side of the pandemic. Now, every company is trying to work out an advertising strategy to connect to consumers and gain share once the economy gets going.
CTV is a clear winner as linear TV’s life is shortened. Unlike traditional TV ads investment where brands and agencies commit billions of dollars without knowing the content and audience, they have the freedom to be more deliberate, liberal, and agile on CTV.
Roku:
- Pandemic has accelerated the shift to streaming by viewers due to excellent content and value.
- In the short term, the video advertising business has slowed down due to budget cuts and low spending by advertisers.
- In the streaming business, active accounts grew roughly 38% Y-o-Y with an increase in new accounts of more than 70% Y-o-Y.
- Streaming hours grew roughly 80% in April and the increase in streaming hours per account is approximately 30%.
- It is estimated that ad business will grow at a slower pace and gross profit margin will be lower than expected for the year.
- The behavioral changes of TV ad buyers are positive in the long-term and more people are expected to stay home to control spending in the light of economic hardships and the shift to streaming business will grow further.
Google:
- In March there was a sudden slowdown in ad revenues owing to COVID 19 and lockdown orders. The first two months of Q1 reflected strong growth. Google search and other advertising revenues generated $24.5 billion, up 9% Y-o-Y.
- After the 2008 crisis, the Google search can be adjusted easily-quickly turn-off and back on which is cost-effective and ROI based. At the inception of the coronavirus crisis, users’ interest was more for information on the virus and non-commercial topics providing less opportunity for monetization.
- Q2 looks difficult for the advertising business.
- YouTube advertising revenues were up 33% year-on-year to $4 billion however there were different performance trajectories for direct response and brand advertising.
- Direct response continued to grow throughout the quarter but brand advertising growth grew for the first two months of the quarter and declined in March. This resulted in the slowdown of Youtube ad revenues by the end of March.
- Similarly, networking ad revenue was $5.2 billion, up 4%Y-o-Y for the first 2 months of the quarter, and declined in March in the low-double-digits year-on-year.
Spotify:
- Ads are a small part of the business, nearly 10% of the overall revenues. Therefore it is less impacted compared to other businesses.
- From a long term perspective, it will be an opportunity to move from linear to on-demand due to COVID 19 crisis.
- It is suspected that advertisers will move from pure reach to more measurable ad formats -mostly analog ad formats.
- The conjecture on advertising and consumption front is what is already happening of linear shifting to digital.
Learn more: Spotify Adds $1.7B To Market Cap In 23 Min Post A Deal With Joe Rogan, World’s Leading Podcaster.
Rubicon:
- The first half of April’s revenue was roughly 30% down until it showed signs of stabilizing in the second half.
- CTV continued to grow at a slower rate in April with a Y-o-Y increase of nearly 10%. Ad slot availability grew by roughly 25% compared to pre-COVID 19.
- Being an omnichannel SSP there has been diversity in ad categories and even more after the merger with Telaria. Certain verticals were highly impacted like travel in entertainment but e-commerce, technology, and direct-to-consumer were benefitted.
- Upfront deals are canceled and focus is shifted to spend from linear to the spot market that programmatic serves.
Microsoft:
- Reduction in ad spend affected Search and LinkedIn business and assumes that the advertising spend will not improve in Q2 as well.
- Search revenue ex-Tac increased by 1%.
Apple Advertising:
- The economic slowdown and uncertainty on business reopening have impacted the advertising business – which is the sum of App Store search ads, Apple news, and third party agreements on the advertising front.
- This slowdown and uncertain future will have a strong effect on the Service business for the June quarter.
Verizon:
- Owing to the COVID-19 crisis, ad revenue declined by 10% in the second -half of March and the rate of decline only increases in April.
- Industry forecasts a fall of 20-30% in digital media and Verizon media results are likely to be similar.
- It also experienced a decline in advertising and search revenue due to hold back or cancellation of campaigns by advertisers and users searching for fewer commercial terms providing less opportunity for monetization.
- Finally, some staggering numbers were seen- 200% up on gaming, 40% up on video, and 10 times up on the collaboration tools. 800 million calls a day, is double the amount on Mother’s Day, the biggest day of the year.
Netflix:
- Increase in subscriber growth in March and is a pull forward for the rest of the year leading to an assumption that subs will be light in Q3 and Q4.
- Filming is stopped globally except Korea and Iceland.
- Customer services are fully restored with 2000+ agents working remotely.
- With the lockdown orders coming into effect in LA, animation production is up and working from home whereas the post-production of 200+ projects is in pipeline remotely.
- Series writers’ rooms are operating virtually.
- Netflix has invested in Open connect, a pioneering cache system that puts content library as close to members’ homes as possible. This enables ISP’s to run their network efficiently and at a lower cost. However, some countries networks may face issues due to the increasing usage of the internet.
Omnicon
- The company doesn’t collect weekly revenue numbers by the agency and roll them up at the Omnicom group level.
- Q2 downfall is expected in double digits and year-on-year revenues will be down.
- The future is challenging but the company expects to get many of those people back as they move into the year ahead.
Learn more about the quarterly performance of other media companies: Financial Report Card Of The Global Giants And Industries In COVID-19
Shopify Revenue Surges As Pandemic Brings More Business Online
E-commerce platform and payment provider Shopify reported its first-quarter revenue that surpassed analysts’ estimates as more businesses moved online to survive coronavirus pandemic.
The Ottawa-based company Shopify said in a statement that sales grew by 47% to $470 million from the same quarter a year ago. However, analysts expected revenues to come to around $443 million
The key metric of gross merchandise volume which represents all goods sold on the platform 46% to 17.42 billion compared to the previous year. Again, beating analysts expected volume to $16.68 billion.
While sales were booming, the company still posted a net loss of $31.4 million or 27 cents a share. However, on an adjusted basis, the company posted a profit of $22.3 million or 19 cents per share for the first quarter of 2020 compared with an adjusted profit of $7.1 million or six cents per share for the same period last year.
CEO Tobi Lutke said in the quarterly release,
We are working as fast as we can to support our merchants by re-tooling our products to help them adapt to this new reality. Our goal is that, because Shopify exists, more entrepreneurs and small businesses will get through this.
Moving Online
Shopify reported a fall of 71% in gross merchandise volume through its store point-of-sale as stores shut down due to pandemic between March 31 and April 24. Companies also downgraded from Shopify Plus to lower-priced plans.
Also, it throws light on the drop in point-of-sale purchases from the brick and mortar stores questions the sustainability of online switch. It provides store based point-of-sale systems to merchants to operate from a single platform in order to maintain online store and sales.
It is closely observing consumer spending habits online and the ability of brick-and-mortar retail merchants to shift sales online. According to the company statement, Shopify retailers managed to replace 94% of their store volume with online sales.
Retail merchants are adapting quickly to social-distance selling, as 26% of our brick-and-mortar merchants in our English-speaking geographies are now using some form of local in-store/curbside pickup and delivery solution, compared to 2% at the end of February.
Chief technology officer Jean-Michel Lemieux noted the surging demand and had U.S. Black Friday-type of traffic as businesses have used Shopify to stay afloat as nationwide lockdown forces retail store closure across the world.
Impact of COVID-19
This pandemic has strained small and medium-sized businesses and accelerated the shift of buying habits to eCommerce. Shopify introduced many initiatives to support merchants and help entrepreneurs start a business online during the ongoing COVID-19 pandemic, including, offering tools to businesses to open their own digital store online across channels including social media.
An extended 90 day free trial for new sign-ups, gift card capabilities to merchants, and introduction to in-store or curbside pickup and delivery options for greater flexibility in the movement of inventory between different locations.
The company stated that the new stores created on the platform grew 62% between March 13 and April 24 versus the prior six weeks, driven by both first times and established sellers. But is also added,
It is unclear how many in this cohort will sustainably generate sales, which is the primary determinant of merchant longevity on our platform.
What analysts have to say
Few analysts still don’t see Shopify profitable enough in the future to justify the current stock price. They believe the rally is overdone.
Barry Schwartz, chief investment officer at Baskin Wealth in Toronto notes that as they grow, the company will face fierce competition from rival Amazon. He added,
They’re up against some very heavy hitters and I don’t think those guys are going to let Shopify win everything.
Buying it here at that valuation, you’re essentially saying, ‘I don’t care.’
Canaccord Genuity downgraded the stock, with a warning “we’re not entirely convinced” that gross merchandise volume “is as bulletproof as perceived.”