Google, Facebook may be heading toward first revenue slumps

Demand for digital advertising is shrivelling after a decade of explosive growth amid pandemic-fueled downturn. That could complicate things for Google and Facebook, who for first time may have to contend with revenues that are actually shrinking.

With consumers mostly at home and unemployment soaring, advertisers are slashing promotional spending — in some cases, all way to zero. For Google and Facebook, who toger account for 70% of U.S. market for digital ads, that so far has translated into tighter restraints on spending without layoffs, pay cuts and furloughs that publishers and or industries have already imposed.

Google CEO Sundar Pichai has already told employees company will curtail its hiring for rest of year and is considering deep cuts in its own marketing budget through 2020, according to

Facebook

So far, however, it's t clear how badly tech giants might be hit. Some of early clues are expected this week when Google’s corporate parent, Alphabet, and Facebook report ir first-quarter financial results. But those results will only give a hint of impact, given that pandemic didn’t start to zap global ecomy — and ad budgets — until late February.

That’s one reason analysts polled by FactSet are still predicting a 13% increase in Alphabet’s revenue from same time last year and a 16% revenue increase in revenue for Facebook.

real test will come in current April-June quarter, where analysts currently project roughly flat revenue for both companies. That could prove optimistic, though, given that airlines, hotels and or travel-related businesses typically spend heavily on marketing campaigns during spring and summer.

With most travel frozen by pandemic, Google and Facebook are likely to see huge sales declines unless threat of COVID-19 subsides, said Edward Jones analyst David Heger.

good news for Google and Facebook, is that digital ad spending can ramp back up as quickly as it declines, since it doesn't require upfront planning necessary with traditional media. That means companies might boost digital campaigns at first sign of recovery, said Tony DiResta, a Washington, D.C., attorney who helps small and large companies promote ir brands.

Google, at least, has already been through this once as a public company. In second quarter of 2009 during Great Recession, its revenue growth slowed dramatically to just 3%, prompting it to reduce its workforce by about 400 employees during that year — only time company has pared its payroll in its 21-year history.

Since n, Alphabet have added nearly 100,000 employees in a relentless expansion built upon Google's Android mobile-phone software and or products it continued to develop during previous downturn.

This recession may look quite different. Google, Facebook, and overall digital market are far larger than y were back n and potentially less nimble. digital industry has posted double-digit annual growth for a decade and was on track to hit about $125 billion in 2019 revenue, based on information compiled by Interactive Advertising Bureau, which hasn't released final numbers for year.

For 2020, Magna Research

Some analysts believe current downturn could leave tech duopoly in an even stronger position once global ecomy recovers. Both Google and Facebook have ermous cash reserves — $120 billion for Alphabet, $55 billion for Facebook — y can use to acquire or potentially attractive services that can't survive recession on ir own, often for cheap.

“Both Google and Facebook are in a good position," said eMarketer analyst Nicole Perrin.

One sign of that buy-low strategy: Facebook last week

Meanwhile, social distancing and stay-at-home orders appear to have overridden privacy concerns about companies' services, which sparked a backlash over way y vacuum up vast amounts of personal information. Both companies reporting rising us.

“It's like moths being drawn to a flame," Heger said. “People can't seem to resist m.”