Q2 Profit example: Google, Facebook faltering ad revenue for each show

The two largest social media companies in the world – Facebook (NASDAQ 🙂 and Alphabet (NASDAQ 🙂 – will continue to show a weak spot in their advertising business due to pandemics when they release their Q2 earnings reports on Thursday, July 30 , market closed.

Facebook: Messaging Explosion, But Ad Spending Slashed

On average, analysts expect Facebook to show a profit of $ 1.39 on revenue of $ 17.33 billion . While the Menlo Park, CA-based company has seen an explosion of messaging, voice and video calling on Messenger and WhatsApp as COVID-19 rages, ad revenues are under pressure after a wide range of global brands announced they stop ads Facebook platform.

In an effort to curb hate speech and disinformation led by civil rights organizations in the United States, a growing number of multinational companies have announced in the past five weeks that they are halting social media spending, primarily targeting Facebook .

Disney (NYSE :), the No. 1 advertiser on FB, has "drastically cut spending on the platform," the Wall Street Journal reported last week. Disney was Facebook's top US advertiser in the first six months of 2020, spending an estimated $ 210 million on Disney +-only ads, according to Journal, citing research firm Pathmatics Inc.

Other top brands participating in the effort include Coca-Cola (NYSE 🙂 and Verizon (NYSE :), all of which say it's their way of showing disapproval of the way the social media giant handles hate speech and misleading content.

The key detail to look for on Thursday's profit release is how the social media giant sees these boycotts affect sales for the remainder of the year. That answer will determine the price for the company's future shares.

Shares have risen approximately 14% since the beginning of the year. The stock closed at $ 233.50 yesterday.

A major strength that distinguishes Facebook from other social media platforms is the power of the revenue stream that is highly diversified. While it certainly benefits, it doesn't depend on major brands.

So while major advertisers such as Unilever (NYSE 🙂 and Coca-Cola have made the most headlines in the current boycott campaign, the vast majority of Facebook's 8 million advertisers are small businesses, many of whom rely heavily on Facebook & # 39; s global reach for their sales. Last year, Facebook ad sales rose to $ 69.7 billion worldwide. For many companies, especially those that rely on e-commerce and direct contact with the consumer, it is not possible to leave Facebook.

That said, it is unlikely that the company will avoid a major slowdown in ad sales. Facebook will only achieve revenue growth of just 3% in June, according to current analyst projections, by far the smallest since the company went public. Environment

For Alphabet, the parent company of search engine colossus Google, the story does not differ much from that of Facebook. The Mountain View, CA-based company is expected to report earnings per share of $ 8.04 on revenues of $ 37.3 billion.

The internet giant's business model relies heavily on ad spend from small businesses, including travel and hospitality companies. With these sectors in deep trouble for the foreseeable future, analysts seem to agree that this year will be one of Google's strongest sales.

The company generally does not provide forecasts, although Chief Financial Officer Ruth Porat confirmed in April that the second quarter will be "a difficult quarter" for advertising.

One bright area that could absorb some of the slack in the current weak period is the company's cloud computing business, which continued to grow even during the pandemic, increasing 52% in the.

Google's huge money pile, its promise to continue to repurchase shares, and the strength of its cloud and YouTube companies helped restore the company's stock from its slump in March. The shares will increase by more than 14% in 2020; they closed at $ 1,529.43 yesterday.

Bottom Line

Investors should not expect much clarity from these two social media Goliaths when they report income every week, especially when their main advertising income markets are under pressure.

That said, strong balance sheets and their market positions – which are formidable – will allow anyone to return strongly once the economy begins to recover.

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