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Tech Giants Face Advertisement Challenges Amid Coronavirus

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Coronavirus (COVID-19) pandemic, which has been wreaking havoc on global trade, investments and supply chains, has taken a toll on the advertisers’ spending and consequently the advertising industry.

The impact of the crisis on the advertising industry is expected to get pronounced through the year as everything from small business spending to big-budget movie ads have slowly died down. The following hypothesis is supported by a report from Omdia which indicates that the global advertising revenues are expected to decline 7.4% in 2020 if market improves in second-half 2020.

According to the same report, these revenues are expected to decline 17% this year if market does not improve.

Consequently, tech giants like Alphabet (GOOGL - Free Report) , Facebook (FB - Free Report) and Twitter (TWTR - Free Report) , which derive significant portion of their total revenues from advertising are expected to continue facing challenges owing to slowdown in advertising spending.

According to Interactive Advertising Bureau survey data, 24% of the media buyers and brands have put a halt on advertising spending till the end of second-quarter 2020.

A report from World Economic Forum shows that the estimates for advertising spending in major markets such as the United States, the U.K., Germany and China for the first-half 2020 stands at $107 billion, $15 billion, $7 billion and $53 billion, down 10%, 12%, 12% and 8%,respectively, from first-half 2019.

Many are of the opinion that the intensity of negative impact on the advertising industry induced by COVID-19 pandemic is likely to be far more than that caused by the 2008 financial crisis. Declining GDP, increased unemployment rates, low retail spending and reducing consumer expenditures remain major concerns globally.

Year-to-Date Price Performance

Lingering COVID-19 Woes Impact Google

Google, which is known to be the largest digital advertising company in the world, has been facing serious challenges amid the ongoing crisis situation owing to sluggish advertisement spending.

Notably, cancellation and postponement of live events by sports leagues, and most importantly steep fall in the advertisement spending by travel companies which have nee hit the hardest by COVID-19, remain key challenges in this regard.

Further, COVID-19-induced economic disruptions have compelled companies in general to cut down their advertisement budget in order to recover from losses. This has been taking toll on the search giant’s advertisement revenues since the past few months.

In the first-quarter 2020, Google’s advertising revenues came in $33.8 billion, accounting for 82% of gross total revenues. Notably, these revenues were weaker-than-expected due to decline in consumer and business spending.

The latest eMarketer data quoted by CNBC shows that Google’s U.S. advertising revenues are estimated at $39.6 billion, down 5.3% from the actual figure reported in 2019.

We believe declining advertising revenues are expected to hurt Google’s competitive position against Facebook and Amazon.

Nevertheless, Google is making every effort to gain momentum in the advertisement world amid the pandemic by promoting the interest of businesses that have been impacted severely by the unprecedented catastrophe.

The company has recently introduced new advertising features, which strive to ensure seamless customer-business connectivity to small businesses.

Currently, Google’s parent Alphabet carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Facebook & Twitter's Status

Facebook, which is known to be the second largest digital advertisement company, generated $17.4 billion of advertising revenues in first-quarter 2020, accounting for 98.3% of the total revenues. The company witnessed weakness across its all user geographies owing to COVID-19-related lockdowns.

Now, the eMarketer data mentioned above shows that Facebook’s 2020 advertisement revenues, which are anticipatedat $31.4 billion will be up 4.9% from 2019. Although the data shows year-over-year improvement, growth rate is much lower than 26.1% in 2019.

Nevertheless, this Zacks Rank #3 company’s rising mobile ad revenues and growing adoption of Stories by advertisers across Instagram, core Facebook app and Messenger are expected to act as tailwinds.

Meanwhile, Twitter, which generated advertising revenues worth $682.2 million (84.5% of the total revenues) in first-quarter 2020, has withdrawn full-year guidance due to sluggish advertiser demand.

However, the Zacks Rank #3 company’s initiatives to add features and focus on effectively tackling abuse issues are helping it expand monetized user base. Further, new policies to ban political ads are likely to encourage trustworthiness of the platform.

Ad Estimates for Amazon

Amazon (AMZN - Free Report) is ramping up its initiatives to bolster presence in the advertisement space. The company’s solid momentum across its advertising services and robust Twitch remain major positives.

Although this Zacks Rank #3 stock holds a small portion of the entire market, it is expected to witness improvement in 2020 advertisement revenues.

eMarketer report indicates that Amazon’s advertisement revenues for 2020 is projected at $12.7 billion, up from the actual figure of $10.3 billion in 2019.

These Stocks Are Poised to Soar Past the Pandemic

The COVID-19 outbreak has shifted consumer behavior dramatically, and a handful of high-tech companies have stepped up to keep America running. Right now, investors in these companies have a shot at serious profits. For example, Zoom jumped 108.5% in less than 4 months while most other stocks were sinking.

Our research shows that 5 cutting-edge stocks could skyrocket from the exponential increase in demand for “stay at home” technologies. This could be one of the biggest buying opportunities of this decade, especially for those who get in early.

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