Google Takes Brunt of Ad Slump as Facebook Skirts By -- Heard on the Street
July 31 2020 - 6:29AM
Dow Jones News
By Laura Forman
Wednesday's antitrust hearing before Congress made tech giants
like Google-parent Alphabet, Inc. and Facebook seem like they've
rigged the deck. But Thursday's second quarter reports from both
companies made the ad game look a little more fair.
Google may be a search monopoly, but its exposure to hard-hit
sectors like travel seems to be hurting it at the moment. The
company reported the first on-year decline in advertising revenue
in its history. Meanwhile Facebook said its own ad growth slowed to
10% from a year earlier in the quarter. That's down from 17% growth
in the first quarter and significantly lower than its quarterly
average of nearly 30% over the previous two years. But Facebook's
double-digit growth was still well above Wall Street's tempered
expectations, sending shares up 6% in after-hours trading on
Thursday. Google shares were little changed.
Facebook said it saw second quarter resilience due to strength
from small businesses leveraging direct response ads, as well as
businesses transitioning online to Facebook Shops amid the
pandemic. The company said it saw a considerable ad recovery in May
and June with advertisers on its platform now totaling nine
million, up from eight million reported last quarter.
Facebook's shares were also boosted by a better-than-expected
outlook for its ad business in the third quarter, basically saying
it should be in line with the second quarter. That is even after
accounting for pressure from macroeconomic uncertainty, the
continuing ad boycott and regulatory headwinds. The implied 10%
quarterly growth rate would be well above the Street's expectation
of 6.7%.
For its part, Google's ad business seems more vulnerable to
current events. "Search and other" advertising revenues fell 10%
year-over-year, according to the company, but finished essentially
flat by the end of June. On a conference call for investors, Chief
Financial Officer Ruth Porat said that advertising revenue improved
throughout the quarter, and that search ad revenue had even
modestly improved throughout July. Investors shouldn't put too much
hope in that recovery, though: Ms. Porat warned that it would be
"premature to gauge the durability of recent trends," given the
fragile macroenvironment.
Indeed, Google's top line may be vulnerable to search verticals
particularly at risk. Bernstein analyst Mark Shmulik estimates
travel and auto contribute 15% to 20% of Google's search revenue.
Travel has been especially slow to recover. Earlier this week,
global hotel search platform Trivago cited renewed weakness in its
U.S. business in mid-June and said it expects international travel
to be limited for the foreseeable future. Meanwhile the
International Transport Association is now predicting global
passenger traffic won't return to pre-Covid levels until 2024.
On its call, Google reiterated that global macroeconomic
performance has tended to be correlated with ad spending, calling
it "a key signal to monitor." In that context, Thursday's report
from the Commerce Department, which showed the U.S. economy
registering its worst contraction on record, certainly doesn't
portend a winning next hand.
At least one tech titan seems hostage to events outside its
control.
Write to Laura Forman at laura.forman@wsj.com
(END) Dow Jones Newswires
July 31, 2020 06:14 ET (10:14 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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