What Facebook, Google and Amazon's earnings mean for our 2020 ad spend outlook

  • Facebook, Google and Amazon announced better-than-expected worldwide ad revenues in Q2.
  • Google and Facebook cited the strength of direct-response advertiser demand as a boon to their businesses.
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All three of the biggest digital ad sellers in the US announced better-than-expected worldwide ad revenue results in their Q2 earnings calls last week, citing the strength of direct-response advertiser demand. We'll be watching what happens in the US digital ad market through the next month, but based on these results, we'll likely make upward revisions to our ad spending outlook for the full year.

  • Google posted an overall year-over-year (YoY) decline in ad revenues for the first time in its publicly traded history for Q2. But each segment of its ad business outperformed our expectations for the quarter. Search ad revenue and Google Network Member ad revenue were both down, but by substantially less than we expected, while YouTube ad revenues grew a few percentage points faster than we anticipated. Overall, ad revenues at Google were down 8% YoY, compared to a gain of 16% in Q2 2019.
  • Facebook also reported ad revenues negatively affected by the pandemic. But the 10% YoY growth was significantly better than the roughly flat growth we had expected. Facebook execs noted the site had more than 9 million advertisers during the quarter, with the top 100 accounting for just 16% of spending — a share that has decreased over the past year — indicating strong demand from small and medium-sized businesses. 
  • Amazon reported "other" revenues, which include its ad business, were up by 41%, which was a small sequential deceleration but represented the fourth straight quarter of growth over 40%.

Google and Facebook execs cited the strength of direct-response advertiser demand as a boon to their businesses during pandemic-related pullbacks. Direct-response advertisers, or performance advertisers, were able to take advantage of lower prices to reach their ROI goals: Facebook reported the average price per ad decreased by 21% in Q2 as impressions were up 40% (vs. a 4% decrease in prices and a 33% increase in impressions in Q2 2019).

"It's not just direct-response anymore," said Facebook COO Sheryl Sandberg. "It's any kind of measurable result. And we offer a lot of different actions you might want someone to take, and that is definitely much more important than brand [advertising] in driving our business." While Amazon execs didn't speak much on their earnings call about the company's ad business — which represents a small slice of total revenues —the vast majority of its ad offerings are performance-oriented and tied to sales in the ecommerce marketplace.

Our forecast assumed that the bottom of the ad market would occur in March and April, with a recovery in May and continued acceleration through the rest of Q2. According to Google and Facebook execs, that's exactly what happened — but it appears to have happened more rapidly and robustly than we expected. That said, we agree with Google CFO Ruth Porat's cautionary note that it's too early to say whether the recovery will continue along the same trajectory, "given the fragile nature of the macro environment."

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