Tech Giants Set To Lose billions in Ad revenue because of Coronavirus

The coronavirus has spread to 175 countries around the world, and it shows no sign of a slowdown. The virus has effectively shut down all major events around the world and has a major impact on the ad tech industry. Ad spending is falling off the cliff thanks to the disruption caused by the pandemic – major tech giants like Twitter, Google, Facebook, and others are expected to face the brunt of the slump in terms of losing billions of dollars in ad revenue this year.

Why we care

The losses aren’t going to weaken the companies but will put a dent in the extraordinary growth which everyone has experienced over the years. 

Numbers speak louder

Cowen & Co. analysts estimate that the two internet giants together could see more than $44 billion worldwide ad revenue evaporate this year. They predict the following losses:

• Facebook: Drop of $15.7 billion, 19% down from the previous estimate.
• Google: Down by $28.6 billion, an 18% decline from the previous estimate.
• Twitter: Down by $701 million, 17.9% below estimate
• Snapchat: Drop by $977 million, 31.8% down from the previous estimate.

Global advertising revenue grows in the ballpark of the GDP rate. Therefore, the global economic slowdown directly affects the global advertising market.

The tech giants were forthcoming with the investors on the expected losses and here what they have to say.

• Facebook execs said in their blog post that the company has “seen a weakening in our ads business in countries taking aggressive actions to reduce the spread of COVID-19.
• Twitter announced in the press release that the company is “withdrawing 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 their effect on advertiser demand.”

That said, Both Google and Facebook will continue to make profits even with double-digit revenue drops. Analysts think the largest tech companies could emerge stronger from the coronavirus crisis than ever because of their healthy balance sheets.

U.S. Ad Revenue Growth Forecasts, FY2020 

All media	Forecast pre-epidemic	Forecast March 2020
Excluding cyclical events (Olympics, elections)	4.4%	-4.4%
Including cyclical events	6.6	-2.8
DIGITAL
Excluding cyclical events	10.9%	3.5%
Including cyclical events	11.4	3.9
Digital search	11.6	4.5
Digital social	17.2	8.7
Digital video	14.2	8.3
LINEAR MEDIA
Excluding cyclical events	-4.4%	-15.0%
Including cyclical events	0.0	-11.7
National TV – excl. CE	-2.7	-13.0
National TV – incl. CE	-0.4	-12.7
Local TV – excl. CE	-4.5	-14.4
Local TV – incl. CE	12.8	0.9
Radio	-2.3	-14.1
Print	-17.0	-25.4
Out of home	3.7	-11.8

 

Image Credit: Axios Visuals

What is driving the news

All the advertising-based businesses are facing the COVID-19 risk but those who are dependent on the self-service advertising revenue from small businesses, which are now shut down will be highly affected in the short term.

As quoted in AXIOS, Vincent Letang, executive vice president and director of global forecasting for Magna Global, the media buying unit of global ad agency IPG said,

“In the first half of the year, digital media vendors will feel the heat. But I still think they will recover more strongly than traditional media in the second half.”

The tech platforms make their revenue by advertising on social media and search which will take a hit in the short term for two reasons:

1. They are self-serve which means anyone can buy ads through the automated platforms at any time without any contract. Therefore, unlike TV ad contracts, there are no policies in place and brands have to adhere to when pulling the plug.

2. Mostly the ads are purchased by small businesses. Letang expressed his views to Axios,

“Hundreds of thousands of small businesses who probably count for 70% of social and search, they will stop advertising for weeks as they are closed. For some of them, it will be hard to come back, as many won’t have the liquidity to start marketing.”

What’s the future

 Analysts expect overall ad revenue to go down by 4.4% excluding cyclical events due to the coronavirus impact on the economy. 

Growth in the digital ad market is dominated by big tech companies like Google, Facebook, Twitter, and Snapchat will emerge from the crisis strongly in 2021.

Magna predicts linear ad sales to decrease to 6 percent and digital media to grow 8  percent.