Google and Facebook – the two companies that account for around 60 per cent of the online advertising market share – have both released their first financial results since the COVID-19 pandemic hit.
For investors, the Q1 results brought good news.
Facebook revealed it had experienced 18 per cent YoY growth in the first three months of 2020 – well above analysts’ predictions – with shares in the company rising 10 per cent in after-hours trading.
Similarly, Google eclipsed industry expectation with double-digit growth, enough to send its share price soaring.
It is important to note the results were buoyed by strong performances in January and February and both companies have warned of difficult times ahead.
However, with Google and Facebook being the online advertising players they are, these results serve as an important indicator for the rest of the industry.
For the smaller companies in the online advertising industry, there are a number of ways to look at the news.
On one hand, promising results from Google and Facebook could translate into an overall stronger than expected online advertising market.
Speaking on Google’s results, eMarketer analyst Nicole Perrin said: “the slowdown was in line with the upper end of our expectations for the digital ad market, meaning cautious optimism may be in order for Q2”.
Unlike other forms of advertising, digital has the ability to bounce back far quicker than others due to lower upfront planning requirements.
And according to MarketWatch, this could mean advertisers look to go digital at the first signs of improvement.
However, some analysts believe the current advertising downturn could strengthen Google and Facebook’s duopoly when things start to improve.
Both companies credited conversion-focused direct response ads to their relative success during the downturn, pointing out that brand advertising was significantly down across the board.
With ad prices falling, marketers have turned to direct response advertising as a way to drive high conversions at a relatively low price.
Facebook, Google and even Snapchat (which also recently released encouraging Q1 results) and Twitter are well-placed to serve such ads.
This means that when ad budgets start ramping back up, it is likely a large chunk will go towards direct response ads.
While this is good news for Facebook, Google, Snapchat and Twitter, for other digital advertisers, it could result in a loss of revenue.
“The crisis is locking in the advantages of the largest players in the market,” said Enders analyst Joseph Evans.
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