· Alphabet has not updated its guidance but others in the ad space have given negative warnings including Facebook (yesterday) and Twitter (Monday). Facebook said, “we’ve seen a weakening in our ads business in countries taking aggressive actions to reduce the spread of COVID-19.” Twitter withdrew their guidance. Neither company issued a specific revision to their revenue projections.
· Although people are spending more time online, with vast business closures many advertisers are temporarily curtailing ad spend. Promisingly, data from parts of Asia where the virus has diminished show a rebound in advertising as workplaces have begun to re-open.
· The travel industry is obviously one such industry that’s curtailing ad spend and travel is the 6th largest online ad category, at about $20B of online ad spending during 2019. At just Booking and Expedia, the two companies spend back a massive portion of their revenue on advertising. At Booking it’s ~33% or $5B and at Expedia it’s also ~$5B or 42% of revenue. The two companies spend a large portion of this with Google.
· The travel industry accounts for an estimated $11B in ad spend at Google or ~10% of revenue.
· While this will clearly be a hit to Alphabet’s revenue(which is almost entirely ad revenue) in the near term, their competitive position long-term is unchanged.
· Regulatory risk could be on the back burner: the current environment is causing regulators in Europe to take a different tone with tech companies (at least for now). See link to FT article below. Maybe the US will as well, as it’s not the highest priority issue and tech companies, w/ their massive resources, have been demonstrating their ability to be a force for social good (like their subsidiary Verily’s coronavirus screening site). Not suggesting the regulatory risks are gone…but it’s possible they are delayed/changed.
· Balance sheet strength: Alphabet has a huge cash hoard to ride through this time of uncertainty. They have no net debt and ~14% of their market cap in net cash.
Coronavirus prompts delays and overhaul of EU digital strategy
https://www.ft.com/content/f3fd4707-db62-4367-83b1-1b73f1b77862
Apple, Google and others partner with Ad Council and US govt to expand coronavirus messaging
Sarah Kanwal
Equity Analyst, Director
Direct: 617.226.0022
Fax: 617.523.8118
Crestwood Advisors
One Liberty Square, Suite 500
Boston, MA 02109
$GOOG.US
[tag GOOG]
[category equity research]