As Covid-19 continues to ripple through the global economy, we're starting to see its effects on businesses and consumer behavior and the digital ad ecosystem is no exception. Last week, Twitter Inc TWTR and Facebook, Inc. FB warned that the coronavirus-driven downturn was driving up usage but hurting their advertising business. Consequently, Wall Street analysts have begun to slash their estimates also for the giant, Alphabet Inc GOOG.
Social media usage Is Blowing Up, But Ads Drop
Coronavirus made Twitter more valuable than ever as its daily usage has jumped by 23 percent this year. But last Monday, Twitter told investors it no longer believed in the projections it had provided to them in early February, leading Wall Street analysts to estimate a 20 percent drop in revenue. Consequently, Twitter's decline announcement was taken as an official warning to the rest of the industry about how quickly things have deteriorated with the pandemic.
The equation is simple: increased viewing hours won't do anything unless companies are willing to pay money to put themselves in front of viewers.
It's quite likely that both Alphabet and Facebook will see material drops in their ad businesses, in part simply because of the nature of the way their ad businesses are built.
Depends On Where You Stand
On the bright side, both Google and Facebook are likely to come out of this mess in much better shape than the rest of their peers because of their size. Also, big TV networks are more protected, partly due to the fact that advertisers make commitments to buy from them many months in advance, but this doesn't mean they are shielded.
Streaming and Roku – The Absolute Winner
Streaming is one of the rare sectors that is set to withstand this crisis. Moreover, some lucky ones could even benefit from the outbreak. Roku Inc ROKU is likely to benefit from a huge surge in viewership along with Netflix Inc NFLIX, Walt Disney Co DIS and its streaming peers. But additionally, the fears of an ad slump are considered overdone when it comes to Roku because it faces little competition when it comes to selling ads to companies looking for exposure to streaming TV users. Roku will also benefit from ads from other providers mentioned above, as well as Apple Inc. AAPL and other industry peers.
In this new normal, Roku will get a large amount of ad revenue from companies such as Domino's, Inc. DPZ that is booming along with other delivery-oriented companies. That revenue won't entirely make up for Roku's typical sales but its ad sales should not drop more than 15% year-over-year.
Roku's commission revenue should jump as Roku gets a 20% commission from the content ordered on its website. As viewing hours soar, Roku users are more likely to pay to try out more paid channels and more movies, all of which will boost the company's commission revenue. And this increase is able to offset much of the ad revenue it will lose from the downturn.
Google's few segments have been hit hard as an overall economy being brought to a standstill. Its heavily hit segments include travel, lodging, autos, retail, and many others. Past downturns have proven that almost no company is immune to severe economic shocks. Moreover, this particular health crisis has its own set of unique dynamics. Although some companies have proven agile in navigating the initial stage of this global pandemic, everyone eventually succumbs to the inevitable. And these giants are no exception.
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