Global Ad Spending to Decline By 4.9% Amid Google and Facebook Slowdown to 6% and 10% YoY

According to the research data analyzed and published by StockApps.com, global ad spending is set to drop by 4.9% in 2020, with a revenue estimate of $614.73 billion.

Given that there was a 6.3% growth in 2019, this would be a significant decline. Prior to the pandemic, the source had forecast a 7.0% growth in the space in 2020. The new revenue figure therefore marks $76.99 billion less than was expected before the outbreak.

The World Advertising Research Center (WARC) echoed similar sentiments. According to its estimates, the ad market will drop by 8.1%, shedding $49.6 billion. Its previous forecast growth for the year was 7.1%. Based on the new estimate, the market would be worth $563 billion.

On the other hand, media agency Zenith predicted an even higher drop for the year, at 9.1%. It however goes further to forecast a recovery in 2021. The reason for its optimism is the fact that the postponed UEFA championship and Tokyo Summer Olympics are both slated for the coming year. As a result, the market could see a 5.8% uptrend.

eMarketer research points out that even though the overall ad spend will decline, digital ad spend is expected to increase by 2.4%.  While this is a positive figure, it is the lowest growth on record as previous increase rates have never been in single digits. The total spending for the year is estimated to be $332.84 billion, $36.11 billion less than it had predicted prior to the pandemic.

 

Google Reports -8.4% Annual Ad Revenue Growth in Q2 2020

According to the aforementioned WARC report, Alphabet is set to suffer a $12.9 billion reduction in ad revenue in 2020. Notably, the second quarter of this year saw the Google parent company report its first-ever quarterly year-on-year (YoY) decline in revenue.

Compared to the same period in 2019, there was a revenue drop of 2% overall, at $38.30 billion. In Q2 2019, there was, in fact, a revenue growth of 19%, at $38.67 billion according to Statista. In terms of net income, there was a 43% drop YoY.

YouTube advertising revenue for the quarter was $3.81 billion, against an expected $3.78 billion according to StreetAccount. This marked a growth rate of only 6%. Given that YouTube only accounts for 12% of Alphabet’s ad revenue, its impact is limited.

Total Google advertising revenue for the quarter amounted to $29.9 billion, marking an annual drop of -8.4%. “Search & Other” revenue dropped by 9.8% during the quarter, equivalent to $2.3 billion. It amounted to $21.32 billion, compared to $23.6 billion in Q2 2019.

Google Cloud was among the few segments that reported significant growth during the period. It surged 43% and reached $3.01 billion. It is noteworthy, however, that most of the search giant’s revenue actually come from advertising. Interestingly, during the 2008/9 financial crisis, the search giant still managed to record an ad revenue increase of 8%.

 

Facebook Ad Revenue Predicted to Decline by $5.3B in 2020

During the same quarter, Facebook reported $18.3 billion in ad revenue, marking a 10% increase YoY. In comparison, its revenue from other operations increased by 40% from Q2 2019. However, as a result of the slowdown in ad revenue, the overall revenue increase was only 11%. This was its slowest growth rate since 2012 when it had its IPO.

Compared to the overall revenue increase of 28% during the second quarter of 2019, there was a considerable decline. According to the prediction from WARC, Facebook is expected to report a decline of $5.3 billion in ad revenue to $77.6 billion for the year. The figure covers all its platforms including Facebook Messenger as well as Instagram.

Interestingly, while ad revenues plummeted in Q2 2020, engagement rose significantly. Daily active users across WhatsApp, Messenger, Facebook and Instagram shot up by 15% YoY in June, registering an average of 2.47 billion users.

Based on an estimate from Cowen & Co., Google and Facebook could lose up to $44 billion collectively in ad revenue in 2020 alone. However, there is a marked difference between the two. According to eMarketer research, 11% of Google’s ad revenue in 2019 came from the travel industry. However, Facebook’s ad revenue is closely tied to mobile gaming as well as direct-to-consumer eCommerce.

At the same time though, Facebook gets nearly 100% of its revenue from ads. On the other hand, for Alphabet, the figure is around 82%. Moreover, it is constantly decreasing as other revenue streams grow at a faster pace than advertising. Overall, both tech giants are expected to remain profitable in 2020.

 

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