Friday , June 5 2020

Facebook signals online ad pain set to worsen

Bloomberg

Facebook Inc.’s revenue held up better than expected in the early months of the Covid-19 pandemic. But the company warned that the worst of the slowdown in ad spending isn’t over, raising the prospect of a bigger hit across the digital-advertising market.
Chief Financial Officer Dave Wehner noted the “potential for an even more severe advertising industry contraction.” His prediction is significant, given that Facebook accepts ads from all industries, and owns apps that now reach 3 billion people every month. There’s been a particular drop-off in the travel and auto industries, he said.
Mark Zuckerberg, Facebook’s chief executive officer, underlined the concern, saying that if shelter-in-place orders end too soon, the economic fallout could be even more pronounced. “I worry that this could be worse than at least some people are predicting,” Zuckerberg said.
The warnings from the world’s largest social network echoed those heard in earlier calls from Google parent Alphabet Inc. and Snap Inc.: While the first quarter remained upbeat, the real impact could come in a few months. Alphabet CFO Ruth Porat said the second quarter will be “difficult,” while Snap finance chief Derek Andersen last week spoke of “factors beyond our control.”
The comments from across the advertising-dependent part of the tech industry also portend the beginning of a trend — for the first time, an uptick in user attention to an app doesn’t necessarily mean that ad growth will follow. They also indicate the visibility these companies have into the broader economy, where advertising revenues are a leading indicator of optimism about the future.
During the Great Recession of the late 2000s, overall ad spending declined for two years straight, with annual digital advertising revenue dropping in 2009 for the first and only time, according to EMarketer. But most of the advertising industry thinks the coronavirus impact will be worse, the researcher said, citing a recent study by the Interactive Advertising Bureau.
Facebook reported an 18% increase in first-quarter revenue, showing advertising demand was strong before the Covid-19 pandemic hit budgets. The results include just a few weeks in March when coronavirus lockdowns began to hammer the economy. The company also said business was steady in the first few weeks of April, sparking a surge in its shares in late trading.
“After the initial steep decrease in advertising revenue in March, we have seen signs of stability,” the company said in a statement.
Like Google and Snapchat, Facebook said it’s seeing a surge of usage and engagement as millions of people shelter in place and look for entertainment and ways to keep in touch online.
Daily users of all Facebook’s apps, including Instagram and WhatsApp, averaged 2.36 billion in March, up from 2.26 billion in December, the company said. Facebook’s core social network now has 1.73 billion daily users, compared with 1.66 billion during the final month of 2019.
For Facebook, the spike in usage will likely have less impact on its business than in prior quarters. Many of the company’s most popular features during the pandemic – including voice calling and direct messaging – are not areas where the company makes significant revenue. Facebook also gets more than half of its sales from small businesses, a group that is hit especially hard by the Covid-19 lockdown and recession.
Snap may be more insulated from the downturn than Facebook and Twitter Inc. because it doesn’t have as many small advertisers, Jim Cridlin, global head of innovation and partnerships at WPP Plc’s Mindshare media agency, said last week. Though the company didn’t provide forecasts for the current period, it said advertising revenue was still growing, albeit at a slower pace.
For its part, Google, which is heavily dependent on search and display advertising, has a more diversified business and therefore may have a greater cushion against a further slump in marketing budgets. Shares jumped following its own earnings report, which showed strong growth in cloud computing and at the YouTube digital-video site.
The tech giants are navigating the pullback from advertising as their workers mostly remain at home, but they’re not advocating for a return to normal. When governments say it’s time to return to work, Facebook is likely to advise its employees to stay at home, Wehner said. Since the company can still ship products remotely, there’s no use overloading public transportation systems. Meanwhile, Facebook is thinking about how to reconfigure its offices, to ensure that once people are back at work, they’re breathing each others’ air less. “I think we’ll be more cautious,” Wehner said on Bloomberg Television.

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